SIMON BROWN: I’m chatting now with Pieter Hundersmarck. He is portfolio supervisor at Flagship Asset Management. [You wrote an article entitled] ‘Six things about bear markets.’ Pieter, I admire your time right this moment. The first two factors are that they’re really pretty widespread and so they’re additionally normally pretty quick in period.
PIETER HUNDERSMARCK: That’s proper, Simon. I feel, simply to perhaps again up a step, the factor about bear markets and why we speak about worrying about them is that they actually engender fairly a lot of concern. We speak about it being an emotional curler coaster and we use phrases like ‘difficult’ and ‘emotional’, however what we’re actually speaking about right here is concern. The reality is individuals are taking a look at their funding statements and seeing drops of 10%, 20% of their gathered wealth and it’s worrying and it causes concern.
If we have a look at historical past, it’s a approach of addressing that concern immediately and saying we’re in a kind of instances the place these items occur. I suppose that’s the primary level, which is [that] bear markets are widespread.
The evaluation that we’ve finished since 1928 reveals that there have been 26 bear markets and 27 bull markets over that interval. So that’s fairly a quantity.
SIMON BROWN: It is. I suppose a part of the trick as properly is that, significantly in US markets, we haven’t seen one for a whereas. Usually each three or 4 years or so we can have one and so they last about a year or so. It’s simply that we’ve had a interval with out, significantly on the Nasdaq.
PIETER HUNDERSMARCK: I feel that’s a nice level, as a result of what’s so distinctive concerning the present bear market is as a result of we’ve been in such a lengthy growth for the reason that 2008/2009 crash we will really characterise that complete interval as one lengthy growth – from 2010 all the best way to right this moment. The Covid drawdown was actually not a extreme bear market and even a lengthy one, by any sense. So the pondering is we actually are in for one thing a little bit deeper this time, simply because the rise has been so robust. And I feel that’s what’s including a lot of concern at present to traders out there.
SIMON BROWN: And period – I mentioned they’re pretty quick. They are typically less than a year in period.
PIETER HUNDERSMARCK: They actually are, though in case you ask traders after they’re in it, it feels prefer it’s happening ceaselessly. But it’s nice to have that perspective. And once more, the work that we’ve finished reveals that the common size of a bear market is 290 days, which is just below 10 months, and the common bull market lasts practically three years, as you talked about earlier than. So they are surely sharp historically. They are sharp and quick corrections.
SIMON BROWN: That mentioned, they are often extreme. And 30%, 40% is the common within the notice that you simply despatched out, which means that we’re perhaps midway or a little over midway. Of course this could possibly be a bear market that’s less than the common, perhaps much more, however to the purpose you made up high of the chat, I imply, your wealth disappears. It is nasty.
PIETER HUNDERSMARCK: Absolutely. We sit right here and we speak about percentages, however to everybody – the person on the road and complicated traders alike – you’re receiving a assertion on the finish of the month, and it [relates to] the variety of models you personal instances a worth, and it’s really a rand worth or a greenback worth that has gone up in smoke. So it’s actually coming again to that emotional problem.
It’s good to say that we’re solely midway by, however that doesn’t make it any simpler.
So, we’re down at present round 20% and on common, we’ve seen declines in bear markets of between 30% and 40%.
But it’s actually price noticing that that 30% or 40% is definitely the underside and shares don’t really keep at that stage for very lengthy. They keep there for perhaps a few days or at most a week, after which they begin to rise once more as traders look ahead to the longer term, because the market all the time does.
It’s a forward-looking mechanism. So it’s vital to not focus an excessive amount of on that precise 40% or 41%, however [rather] simply to wrap your head round this [being] the kind of draw-down I ought to have the ability to expertise and dwell by.
SIMON BROWN: That is the important thing level. I admire it’s straightforward for you and I to take a seat there on a phone name and say that one of the best course of recommendation is to remain put. You’ve talked about that it’s exhausting to do when your web price goes up in smoke. But that actually is what to do, significantly in the event that they occur shortly, significantly on the backside. And we’re in all probability not going to get to time it proper.
PIETER HUNDERSMARCK: Absolutely. I’m conscious that many market commentators, together with myself, have this drained chorus of ‘you need to stay put, and, you need to stay invested’. I get it, it’s robust, however we’ve got historical past to information us by way of how these items work, and it’s vital to do not forget that. It’s vital to remind traders, even when they assume we sound like damaged data, like many people do, however it will be significant,
as a result of you may make actually unhealthy selections to your wealth creation in case you strive or in case you succumb to the psychological challenges, and in case you resolve to leap from fund to fund or from inventory to inventory.
I feel that’s a chorus that should come by very powerfully in these instances.
Just to remind folks – for instance, half of the market’s strongest days within the last 20 years occurred throughout a bear market. A 3rd of the market’s finest days happen within the first two months of a bull market properly earlier than it’s clear that a new bull market is definitely beneath approach. So it simply speaks to time out there and never timing – once more, one thing that traders, are very aware of. But that doesn’t make it any less true.
SIMON BROWN: And the important thing level, I feel, is the one you made proper up entrance. Since 1928 there’ve been 26 bear markets, however there’ve been 27 bull markets. Every bear market’s been adopted by a bull.
PIETER HUNDERSMARCK: And the bull markets are stronger than the bear markets. So over the last a hundred years bear markets have made up a fifth of these years, however the markets rise 80% of the time and the general route of markets is to rise. So you really at your peril resolve to time the market as a result of, in case you get it proper you may really feel a bit like a hero, however in case you get it fallacious you’re going towards an unlimited quantity of historical past.
SIMON BROWN: And then your wealth actually has gone up in smoke.
We’ll go away it there. Pieter Hundersmarck portfolio supervisor at Flagship Asset Management, I admire the time.
