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Market Statistics

Bear Markets Have Lasted Longer Than Most Permabulls Think

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When the market is on a strong uptrend, gloom and doom analysts are under attack, but after a large correction, everyone remembers the broken clocks that were right. Experienced investors know that gloom and doom analysis serves a purpose. Stocks have been in a bear market for longer than permabulls think.

My suspicion has always been that the main reason gloom and doom analysis is so prevalent in the markets is because the mainstream financial media has elevated those who (presumably) predicted market crashes to the status of geniuses.

“Today we will talk with ____, who predicted the 1987 crash.”

“Coming up, a conversation with _____, who predicted the 2008 crash.”

And so on. There are many examples of this sort.

There are numerous examples of mainstream financial media using gloom and doom sensationalism tactics as a business model.

In journalism and mass media, sensationalism is a type of editorial tactic. Events and topics in news stories are selected and worded to excite the greatest number of readers and viewers. Source: Wikipedia.

Many analysts have come to believe that forecasting a market crash is the key to gaining attention from mainstream financial media. This is the reality that accounts for the overwhelming sense of gloom and doom.

However, a deeper examination reveals that gloom and doom serve an important function, acting as a damping force that dissipates irrational exuberance and greed.

Imagine equity markets devoid of negativity; the primary drivers would be reflexivity, driving higher prices. Think of a car moving on an icy road where there is no damping. Damping is an important force in life; without it, most dynamical systems are unstable, and some are chaotic.

While I find gloom and doom entertaining, or even silly at times, I have realized after many years in the markets that it is one side of the coin; the other side is excessive optimism.

Excessive optimism about the future is indistinguishable from charlatanism. In the past, I have shown that the odds of the market rising in any given year are 2.7:1. This is the result of the market’s long-term upward bias, which has at least two drivers:

  • Long-term wealth creation.
  • Constant index rebalancing.

The U.S. economy is enormous, and public companies generate tremendous wealth. Unless that changes, there will always be new candidates in the indexes to maintain an upward bias. I have previously argued:

The S&P 500 index is one of the best trading strategies.

Permabulls vanish during rapid corrections and bear markets, only to resurface once a bottom forms. They provide statistics on how the market has recovered after significant declines. This is absurd; statistics are not necessary for this purpose. Just look at the log chart.


However, there is a problem: approximately 18% of the time, the S&P 500 index has experienced a bear market (drawdown exceeding 20%). If we include the 1920s left tail with Dow 30 data, the index has been in a bear market for 35% of the time!


And while the permabulls are talking about returning to the “roaring 20s,” don’t the permabears have the right to talk about a market crash?

Serious investors ignore both permabulls and permabears and follow simple strategies that minimize losses and improve risk-adjusted returns. Anything else, including technicals and fundamentals, equates to fighting with noise. Here is a recent article with a simple strategy.


Both permabears and permabulls are amusing. Both focus on sensationalism and often miss the essential drivers that contribute to long-term wealth creation: solid risk-adjusted returns. The best way to realize consistent risk-adjusted returns is through a systematic approach to investing and trading.

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Specific disclaimer: This report includes charts that may reference price levels. If market conditions change the price levels or any analysis based on them, we may not update the charts. All charts in this report are for informational purposes only. See the disclaimer for more information.

Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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