MARKET COMMENT
Bears Don't Die, They Just Hibernate

By David Kuo (TMFDragon)
August 27, 2002

"So, was that the end of the bear market then", my wife asked. She was pointing to our Friday evening market report headline as she spoke. The headline triumphantly claimed that the FTSE 100 index had gained ground for four successive weeks. Trying not to sound too ignorant, because I didn't know the answer, I said, "Bears never die, they just go into hibernation." Luckily for me, I had just finished reading a book called 'Bear Market Investing Strategies'. It's not a book that I felt comfortable reading, simply because I don't think any such strategy really exists. But the book did provide me with some useful facts about bear markets in the past. It relates to the US markets but the points translate over to the UK.

Since 1900, there have been a total of 26 US bear markets. (The book does not precisely defined what a bear market is, it's just described as a "depressed or declining market"). That equates to an average of one bear market for every four years over the past century. In the last twenty years, there have been five bear markets in total. The length and severity of each bear market tends to vary quite considerably. In some situations, the declines are so gentle that arguments abound as to whether a bear market really existed at all. A good example of this was the decline in 1960 when the Dow Jones Industrial Index fell 18% or a loss of 124 points. The period of decline lasted 10 months. Other declines have been more severe where benchmark indices have fallen by much more significant amounts.

However, bear markets never last forever -- eventually they have to come to an end. The end can sometimes come abruptly and at other times they just lumber to a gentle halt. Share prices then start to rise again, until such time that the market becomes so overvalued that our supine friends emerge once again from their hibernation.

There are some who will try and tell you that it is possible to predict both the beginning and the end of a bull run. They will also hint that it is in some way possible to determine when a bear market will draw to a close. Of course some of these pundits might well be right some of the time. With so many pundits a few of them have to hit the mark occasionally. They may even be able to beat the market average when they are right. However, when they are wrong, they will inevitably underperform the market. In truth, then, the best that the vast majority of us can hope to achieve is to perform in line with market averages.