Timing the Next Bear Equity Market
By Don Chambers
In the year 1870 nobody could have guessed how economically successful America would be 150 years later. Who could have predicted that the vast majority of Americans there enjoy cars, electric lights, central heating and air conditioning, medical advances, TVs, cell phones, and, most impressive of all, instant wireless communication through the internet? After millennia of struggling just to avoid starvation, starvation in most regions has been eliminated. In the last 150 years life expectancy in America was more than doubled, Americans walked on the moon and surgeons developed methods to repair fatal hearts defects from a simple incision in a leg or arm.
And the level of the stock market has reflected this incredible economic miracle. Even after adjusting for inflation, over the last 150 years $1 invested in the U.S. stock market (with dividends reinvested) would have grown to almost a half million dollars ignoring taxes and transactions costs. Although there were seemingly long periods of time (e.g., the 1930s) in which stock prices languished, in the multi-generational time horizon the growth has been stunning.
The 150 year track record of long-term growth is a good reason that investors should stick with target exposures to equity securities based on their financial goals, circumstances and investment experience. The last 10 years has been a period of generally rising equity prices. It is tempting to attempt to “market-time” this trend by getting out of the stock market before the next bear market occurs. A bear market will certainly arrive…someday. But it just isn’t worth betting on that it will arrive at any particular time. Wise investors should be prepared for a bear market at anytime by having an appropriate exposure to equities. But evidence suggests it is not worth trying to time it.