Author: Leigh Jobling, Partner, TAG Financial Services
We call them the “Bulls” and the “Bears”.
The bull is feisty, confident, aggressive and ready to meet any challenge head-on.
The bear is quiet, reserved, conservative and faced with uncertainty retreats to its cave.
Such is the typical investor – overstimulated by financial media and speculation, influenced by those that are ill equipped to comment about financial strategy and motivated by either the fear of missing out on financial gains or protecting their wealth from financial loss. Rational thought, data and even company profits are discarded and replaced by raw emotion -greed or fear!
History shows that share markets over time increase in value. It would be lovely if it was a nice steady, gradual incline that wandered ever upward, with no obstacles.
Unfortunately, markets rise and fall (sometimes quite violently) in the short term, sometimes lasting for a period of months and is some cases even years. But while the bears might own the playground some of the time, the bull controls the neighborhood most of the time. As a result, while markets can fall (and corrections of 10% – 20% are not only possible, but regularly expected) the duration and size of the market increases means that markets rise over time.
The graph below shows a 30-year history of the Australian share market. The GFC in 2008/09 and commencement the COVID pandemic are unmissable, yet markets grind higher over time.
The following graph is one of my favourites and illustrates brilliantly the size and duration of bull markets, as opposed to bear markets.
Source: Bloomberg. Based on All Ordinaries Price Index, monthly observations (from 31/12/1969 to 31/12/1979) and daily observations (from 31/12/1979 to 26/04/2019). A bull market is taken to be a +20% move; a bear market -20%.
As can be seen, the average bear market lasts (on average) 13 months and results in a negative return of 35.8%. Conversely the bull markets averaged 46 months in duration, with an average return of 130.1%
While no one wants their portfolio to fall in value, selling at the wrong time can be disastrous, because missing the inevitable bull market which generally follows would be a shame.
If you are uncertain about how your investment approach aligns with your personal values, goals and plans for the future, contact me or one of our advisers for a complimentary meeting to discuss your needs.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.