It was the end of a day as I sat in a local restaurant kvetching to a friend.  Kvetching is Yiddish for complaining.  I really love Yiddish because it often captures not only a word but the sound of feeling in the word.  It’s spoken emotion.  “It’s been a five-year secular bull market,” I kvetched.   “So what’s the problem?” he asked.  “On CNBC they still call it ‘the rally,’” I said.  “Rallies don’t go five years,” I added.  “Only secular bull markets do.   And worse, they ask the same question of every guest. ‘Can the rally continue?’  Everyone is caught in the moment trying to guess the immediate direction of the market.  And because everyone knows that can’t be done … everyone is afraid!  It’s a joyless bull market.”

It was then that my friend, Jeff Loynd, who is also in the investment business, made a very cogent observation!  “Just imagine if our clients bought a short-term three to five bond and interest rates moved against them.  Would they be upset?  No.  They would just decide to ignore the immediate loss knowing they would eventually get their money back in three or five years.  They should take that perspective to investing in stocks” said Jeff.

Obviously, the bond has a presumed guarantee while stocks do not.  But stocks have quite a bit of history on their side when viewed with a three-to five-year perspective … even in the worst of times.  Jeff’s comments ignited a realization in me:  the shortness of bear markets.  We don’t realize it at the time because it feels so painful.  The emotional impact of losing is 2x the emotional impact of gaining. 

None-the-less my mind raced back over the nearly fifty years I’ve been in the investment business.  Of course, I immediately thought of the most recent bear market we had just experienced in 2008-2009.  A decline of close to 48% will definitely get your attention!  But then I realized – to Jeff’s time point - it was over in 15 months … and the average length of a bear market is just 367 days.  And, as importantly, the start of a new bull market often has dramatic upside potential ... which people who panic miss.

My mind then went back further though the recent decades of 2000, the 1990s, 1980s, 1970s, and 1960s.  I thought of all the bear markets that I had experienced.  The longest was 1973-1974.  That was a secular bear market.  In fact, of all the bear markets in the 50 year time frame, it was really the only one that I could recall that had both significant macroeconomic stress – high inflation, rising interest rates, federal deficit spending  - AND stock market speculation in the Nifty Fifty era.  Despite all that, it still easily fit into Jeff’s three-to five-year time frame perspective for market contraction and expansion.  

To put stocks in perspective:  In terms of years, the market goes down 28% of the time and up 72%.  I would add that stocks are the only asset class that has individuals – management – working on your behalf … through bull markets and bear markets.    No other asset class – physical or intangible - does. 
 

Francis Patrick Boland

2-7-2014