enough for many observers to include them in an ongoing cycle of boom
and bust.
The biggest bear market occurred in the 1929 to 1931 market crash,
when the market lost almost 90 percent of its value. This devastating loss
of wealth and the accompanying depression shaped our history for
decades. It took the deficit spending of World War II to get the market
back on a sustained track. However, even that didn’t last long. The mid-
1950s saw the first modern bear market, the first of nine, not counting
the one that began in 2000.
Tips
Deficit spending spurred the economy by making the U.S. government
an active buyer of goods and services to support the war effort. Deficit
spending, however, can have the opposite effect when taxes are raised to
pay the increasing debt.
The sustained bull market of the 1990s convinced many of the 50 million
Americans who own stock that they were on a one-way ride to a comfortable
retirement. The 10-year run also convinced many people who
had never invested in the stock market before to give it a try. Many were
totally unprepared for what happened.
The stock market, led by Internet and technology stocks, was highly
overpriced. When investors failed to see the profits they expected from
these rising stars, they panicked and began a sell-off that drove prices down
dramatically. Uncertainty spread to other parts of the market, and the bear
was loose.
Unfortunately, history has a way of repeating itself at the most awkward
times. If they had looked at the following chart of bear markets since
the 1950s, they might have been better prepared for what was coming.
This chart shows the nine bear markets leading up to the bull market of
the 1990s. Many investors might remember the beginnings of a devastating
bear market of 1987 and Black Monday, when the market plunged
hundreds of points, as the worst in modern history. The chart clearly
shows, however, that it was only the third worst, and its recovery was
much quicker than previous bears.
Many observers called the bear market that began in 1973 a “super” bear,
in part because it occurred during a period of high inflation and because
of the lengthy recovery. Pity the poor soul who had planned to retire during
this period. After investing for many years, a long, painful bear market
takes almost one half of her portfolio’s value, and inflation takes a big
bite out of the remainder.
Losing one half of your retirement nest egg would be devastating.
Could it happen again? It most certainly could.
C a u t i o n
Don’t believe the popular notion that “things are different” now and
bear markets will not be long-lived or too severe. No one knows that for
sure.
Read More : BEAR HISTORY
