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End of the Bull, but fortune favours the brave

8 April 2020
end_of_bull_fortune_favours_the_brave.jpg
Source: https://www.designindaba.com/articles/creative-work/dead-bull

The Bull is officially Dead
After running for 11 years since 9th March 2009 (the closing low for the S&P 500 after the worst global financial crisis since the Great Depression)1 we can now conclude that one of the longest bull market in US history is officially dead, having fallen more than 20% from its peak for both the Dow Jones and S&P 5002 and joining other major indices around the globe.3

During this spectacular bull run up to 5th March 2020, the S&P 500 had delivered a cumulative return of 462.1% and have seen pullbacks in 2011 and late 2019 of more than 19% from its previous highs, putting the index within a whisker of ending the bull run, before recovering to push to new heights.1

Even at the start of this year, no one would have predicted that what will bring it to its knees is a roughly 120–nanometer virus. Despite contending with a U.S–China trade war, the European sovereign debt crisis, Brexit and civil wars occurring in oil–producing regions such as Iraq and Libya, it was the COVID–19 that was ultimately responsible for ending the market's monumental run.2

end_of_bull_chart01.jpg
Source: Marketwatch, Dow Jones Market Data, FactSe1

This demonstrates, once again, that we rarely know what will lead to a bear market before it happens.

However, don't mourn the end of an unprecedented period of expansion. Rather, be thankful you can buy into great businesses at a discount before the next bull market begins again.

Bear markets don't last long
An analysis of the historical performance of the S&P 500 index from 1926 to 2019 could perhaps help to gain a fresh perspective of investing in the long–term and guide our investment philosophy during bull and bear markets.

History tells us that the average bull market lasted for about 6.6 years and with an average cumulative total return of +339%, while the average bear market lasted for just 1.3 years with an average cumulative loss of -38% (Refer to diagram from “First Trust” below).

Just how deep or how long will this bear market last is anyone's guess, and the two most important questions you will hear during any recession are “When will it end?” and “How quickly will we recover?”

covid19-chart02.jpg
Source: First Trust4

During the Great Depression (August 1929 to March 1933), one of the longest recessions in US history, the S&P 500 fell -83.4% across 2.8 years, while the recent Global Financial Crisis in 2008–2009 lasted 1.3 years and fell -50.99%. The shortest bear market, however, is during the stock market crash of October 1987 which did not trigger any recession.5

Recovery could come in all shapes and sizes
While many economists, politicians and market watchers are making all sorts of predictions ranging from V–shaped, U–shaped, W–shaped or even L–shaped recovery6, it is never easy to get it completely right or even successfully time the bottom with certainty.

If we disregard the remote possibility of an L–shaped recovery where markets fail to recover despite all the fiscal, monetary and containment measures put in place, the next worst outcome is a W–shaped recovery, also called a “double–dip recession”.

A W–shaped recession is painful because many investors who jump back into the markets after they believe the economy has found a bottom end up getting burned twice – once on the way down and then once again after the false recovery.7

The recession of 1980 that double–dipped in 1981 and 1982 is a great example of a W–shaped recession.

While we do not know what shape this recovery could take, what we do know is that world leaders and central banks are acting swiftly to take unprecedented measures in these unprecedented times in order to make sure that the economy can continue to function properly, safeguard jobs and cushion the impact on people's livelihoods so that the world can avert another Great Depression.

The math of % gains and losses
Given that huge swings in prices and volatility are expected to follow in the coming weeks and months as the market attempts to find a bottom, the mere sight of the stock market being in the red and with news headlines such as “Recession imminent” or “Stock markets at 5 year low” simply excites many investors, especially those who have been sitting on the sidelines and holding on to plenty of cash, ready and waiting to put that idle cash to work to make your first or next pot of gold in the stock market.

It is no surprise why these investors are excited, because while others see fear and uncertainty, they see an opportunity of a lifetime and the mathematics of percentages are clear.

A 10% decline of $1,000 equates to $900, but a 10% increase from $900 only amounts to $990. If you had lost 10% of your portfolio value, you will correspondingly need 11.1% gain to recover your initial position and your portfolio would have to work harder to regain losses.

covid19-chart03.jpg
Source: Recent highs extracted from Yahoo Finance

On the flip side, if you have invested in the stock market which have already fallen 30% from its peak, you would have gained about 42.9% once it regains its previous high. In a severe bear market scenario, if you managed to invest 50% lower than its recent high, then you would essentially double your investment if the market returns to its previous peak in a few years' time.

Understanding this simple mathematics of percentages can hopefully give you more confidence and optimism in this downturn, and perhaps even share the same level of excitement and enthusiasm that many value investors and bargain hunters are feeling right now.

On a final note:

  1. Don't mourn the end of an unprecedented period of expansion. Rather, be thankful you can buy into great businesses at a discount before the next bull market begins again.
  2. Remember that historically, bear markets are much shorter than bull markets, don't try to time the bottom because chances are, you'll never catch the bottom perfectly. Rather, keep a level head and spread out your investments across the next few weeks and months.
  3. Set aside your emergency cash and liquidity needs first before taking the plunge into investments, you do not want to end up liquidating your investments on a rainy day.

If you are not confident of timing the market, one good way is to invest in smaller tranches or set up a Regular Savings Plan (RSP) on dollarDEX to smooth out the volatility and take the emotions out of investing. It is also important to have a diversified portfolio to avoid concentration risk in a particular sector or region.

Start your no–fees investing journey with us on dollarDEX and explore close to 1,000 funds using our intuitive fund finder.

Keep calm and stay healthy. Invest wisely and prudently!



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All information here is for GENERAL INFORMATION only and does not take into account the specific investment objectives, financial situation or needs of any specific person or groups of persons. Prospective investors are advised to read a fund prospectus carefully before applying for any shares/units in unit trusts. The value of the units and the income from them may fall as well as rise. Unit trusts are subject to investment risks, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currencies should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance. dollarDEX is affiliated with Aviva but dollarDEX does not receive any preferential rates for Aviva products as a result of this relationship. Unit trusts are not bank deposits nor are they guaranteed or insured by dollarDEX. Some unit trusts may not be offered to citizens of certain countries such as United States. Information obtained from third party sources have not been verified and we do not represent or warrant its accuracy, correctness or completeness. We bear no responsibility or liability for any error, omission or inaccuracy or for any loss or damage suffered by you or a third party (including indirect, consequential or incidental damages) arising in any way from relying on this information.

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This article has not been reviewed by the Monetary Authority of Singapore.

Information is correct as of 08/04/2020.