What Is A Secular Bear Market?Summary: Understanding the nature and scale of a bear market is often very difficult to do at the time. Instead, it might only be after the event that the full scale of devastation becomes clear. One reason for this is that there is more than one type of bear market. Therefore, this page will hopefully explain some of the differences between a secular bear market and a cyclical bear market. Offering a cast iron definition of something can be a very tricky thing to do. This is especially the case in the world of finance and investment. Many investment related terms have no sense of meaning to those that exist outside the financial or economic spheres. It is for this reason that we turn to another source here. In the world of investment strategy, Barton Biggs has been a very major player on the global scene for some years. For a number of years, he was considered the number one global strategist, and spent many years within the upper echelons of Morgan Stanley. In his excellent book about the hedge fund world, Hedgehogging, he describes bear markets thus: "To me, a secular bear market is a decline in the major stock averages of at least 40% - and considerably more in secondary stocks - where the decline lasts at least three to five years. The fall is then followed by a long hangover that drags on for a number of years as the excesses are purged. There can be cyclical bull markets during this period, but it will be a long time before a new secular bull market begins in which the popular averages exceed the old highs and climb towards new peaks. By contrast, a cyclical bear market is a fall of at least 15% but less than 40% that rarely lasts more than a year. A panic is a very short, sharp break. Length is an important part of the secular bear market definition, because time and sustained pain are what alter behavior patterns and change society. By these definitions, I count two secular bear markets in the United States in the past century (1929 to 1938 and 1969 to 1974), at least three panics (1916, 1929 and 1987), and 25 garden-variety cyclical bear markets."
When these descriptions are combined with the thoughts of veteran bear market expert Harry Schultz here it becomes quite clear that bear markets - be they big or small - are very painful experiences for both a professional and an individual investor. There are of course many reasons for this, however human nature is almost certainly the overriding factor. Why human nature? We suggest that it is simply because the majority of humanity is optimistic and lives in hope. Thus, we find it difficult to face the idea that things will turn out badly and prefer to look away. This also leads us to avoid educating ourselves about bear markets, recessions, panics and depressions. Such ignorance makes us blind to the potential reality. To read about some of our preferred service providers, please visit the following pages:
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