On The Cyclical Versus The Secular
At our recent meeting last week, we happened to comment on the fact that since March of 2000, we have been in a secular bear market, and since the spring of 2002, we have been experiencing a cyclical bull within the secular bear. And this calls for some further comments on the subject.
Bull and bear markets can be either cyclical or secular, with cyclical referring to the shorter term and secular to the longer term. The last secular bear market was when the Dow peaked in 1966, and did not break to significant new highs until 1982, some 16 years later. An even longer secular bear market happened when the Dow peaked in September of 1929, and did not surpass that level until 1954, a period of 25 years.
During the 1966-1982 bear market, there were five separate bear legs with drops of 20% or more and four separate bull markets with gains of 20% or more. These cyclical bull and bear markets alternated. The first leg lasted from February of 1966 until October, and in that time, the Dow fell 25%. It was followed by an up leg to a peak in December of 1968, and investors were rewarded with a 32% gain.
It is easier to achieve a higher percentage gain than it is a loss. If the Dow drops from 1,000 to 500, it's a 50% loss; and if it goes back to 1,000, the gain is 100%. But despite the percentage difference, the investor comes out even.
After the December 1968 high, the next cyclical bear market was in May of 1970, and the loss was 36%. From that low, we saw a 66% gain, which ended in January of 1973. The next leg of the bear market was down 43%, and ended in December of 1974. That low was followed by a very strong 75% gain in the Dow that ended in September of 1976.
Following this high was a 27% down move that ended in February of 1978. The final cyclical bull market segment of the secular bear market ended in April of 1981, with the Dow gaining 38%. The last cyclical bear market ended in August of 1982, with a Dow loss of 24%.
That was the end of the previous secular bear market. From the Dow low of 777, we then began a secular bull market. And for the next 18 years, each year's low was higher than that of the previous year. And as President Ronald Reagan stated while visiting the New York Stock Exchange in 1984, "We're going to turn this bull loose." And that's exactly what did happen!
In the last bull market, people were willing to pay fantastic prices for technology and Internet companies that posted no earnings at all. Thus, when people are optimistic, they will pay very high prices and settle for low yields; when they are pessimistic, they are not interested in either low prices or high yields.
Warren Buffett once compared being in the market to being a business partner with a person who offers to buy your half of the business for twice what it is worth, and later offers to sell you his or her half for half of its worth. So it is always a learning experience to see what it will take to get investors interested -- fair value, or perhaps even less.
* * * * *
Bull and bear markets can be either cyclical or secular, with cyclical referring to the shorter term and secular to the longer term. The last secular bear market was when the Dow peaked in 1966, and did not break to significant new highs until 1982, some 16 years later. An even longer secular bear market happened when the Dow peaked in September of 1929, and did not surpass that level until 1954, a period of 25 years.
During the 1966-1982 bear market, there were five separate bear legs with drops of 20% or more and four separate bull markets with gains of 20% or more. These cyclical bull and bear markets alternated. The first leg lasted from February of 1966 until October, and in that time, the Dow fell 25%. It was followed by an up leg to a peak in December of 1968, and investors were rewarded with a 32% gain.
It is easier to achieve a higher percentage gain than it is a loss. If the Dow drops from 1,000 to 500, it's a 50% loss; and if it goes back to 1,000, the gain is 100%. But despite the percentage difference, the investor comes out even.
After the December 1968 high, the next cyclical bear market was in May of 1970, and the loss was 36%. From that low, we saw a 66% gain, which ended in January of 1973. The next leg of the bear market was down 43%, and ended in December of 1974. That low was followed by a very strong 75% gain in the Dow that ended in September of 1976.
Following this high was a 27% down move that ended in February of 1978. The final cyclical bull market segment of the secular bear market ended in April of 1981, with the Dow gaining 38%. The last cyclical bear market ended in August of 1982, with a Dow loss of 24%.
That was the end of the previous secular bear market. From the Dow low of 777, we then began a secular bull market. And for the next 18 years, each year's low was higher than that of the previous year. And as President Ronald Reagan stated while visiting the New York Stock Exchange in 1984, "We're going to turn this bull loose." And that's exactly what did happen!
In the last bull market, people were willing to pay fantastic prices for technology and Internet companies that posted no earnings at all. Thus, when people are optimistic, they will pay very high prices and settle for low yields; when they are pessimistic, they are not interested in either low prices or high yields.
Warren Buffett once compared being in the market to being a business partner with a person who offers to buy your half of the business for twice what it is worth, and later offers to sell you his or her half for half of its worth. So it is always a learning experience to see what it will take to get investors interested -- fair value, or perhaps even less.
* * * * *
posted by Bob Moser at
7:32 PM
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