Bear Market Statistics

from Curian Capital Investment News article 09/24/08


In last weeks Investment News, an article titled "Investors Should Not Panic in Downturn, Study Says", does a nice job of putting current conditions in perspective. In a study going back to 1948, it found that there have been 12 bear markets that have lasted an average of 14 months and saw an average decline of 22.4%. Following each bear market, there were 12 bull markets that lasted 45 months on average and saw an increase of 123.9%.

Knowing that, lets assume that you invested a clients $100,000 the first day of a bear market. Their account would have dipped to $77,600 14 months later and likely pulled out of the market. However, if they remained committed to their plan they would have finished with $173,746 at the end of the 45 month bull market.

In addition to these findings, if you track the S and P for approximately the last 40 years we know that it has average an annual rate of return of nearly 12%. That means that the average monthly return for those 480 months is approximately 1%. However, the top 10% (48 months) have averaged nearly 8%, while the bottom 90% (432 months) have seen an average return of approximately .1%. This tells us two things. First, the market moves in spurts making it more difficult to miss the lows and capture the highs. Second, if you are out of the market you miss the bulk of the returns.