Comparing 1929 to 2000
Oct/25/08 09:33 AM Filed in: 7 Education
and Research
We
understand how tough it is to watch your portfolio go
down amidst this crisis. Our firm was founded by a
group of families and we invest side by side with our
clients. We're all experiencing a very difficult
situation together and, like you, we look forward to
its end. In the mean time we must remain disciplined
and diversified. The following analysis exemplifies
how the current events compare and contrast with
those of the past.
First, let's look at the roaring 20's and the 2000 tech bubble. Why is this analysis relevant today? The current bear market is remarkably similar to the sell-off that occurred from 1937 to 1938. In short, if 2008 is our version of 1937, this could could amount to one very bad year followed by a year of good returns.
The technology gains seen in the 1920’s and the euphoria after the end of World War I lead to an extremely speculative market that crashed in 1929. In similar fashion, the technology gains seen in the 1990’s and the euphoria after the end of the Cold War lead to an extremely speculative market that crashed with the bursting of the tech bubble.
Today we are facing a financial system that has outgrown a regulatory system created in the 1930’s. The regulation that was enacted in the 1930’s was critical to restoring market order and confidence. The same holds true today. Over the next few years we will see our regulatory and political leaders enact a series of new regulations that will bring our current rules and regulations up to date.
We saw the worst equity erosions from 2000 to 2002, which was very similar to the equity erosion from 1929 to 1931. In 1937 the S&P 500 fell 36%. We believe 2008 may be our version of 1937, which will hopefully amount to one year of poor market performance.
The following document shows how the market moved through the periods discussed (1929-1947 and 1998-present) and pinpoints important events along the way. For those of you who are not visual thinkers you might find the following document a bit confusing Click Here to see our work.
In doing our research we found that we're not the only one's with this belief. If you’d like to read a detailed comparison: Click Here
First, let's look at the roaring 20's and the 2000 tech bubble. Why is this analysis relevant today? The current bear market is remarkably similar to the sell-off that occurred from 1937 to 1938. In short, if 2008 is our version of 1937, this could could amount to one very bad year followed by a year of good returns.
The technology gains seen in the 1920’s and the euphoria after the end of World War I lead to an extremely speculative market that crashed in 1929. In similar fashion, the technology gains seen in the 1990’s and the euphoria after the end of the Cold War lead to an extremely speculative market that crashed with the bursting of the tech bubble.
Today we are facing a financial system that has outgrown a regulatory system created in the 1930’s. The regulation that was enacted in the 1930’s was critical to restoring market order and confidence. The same holds true today. Over the next few years we will see our regulatory and political leaders enact a series of new regulations that will bring our current rules and regulations up to date.
We saw the worst equity erosions from 2000 to 2002, which was very similar to the equity erosion from 1929 to 1931. In 1937 the S&P 500 fell 36%. We believe 2008 may be our version of 1937, which will hopefully amount to one year of poor market performance.
The following document shows how the market moved through the periods discussed (1929-1947 and 1998-present) and pinpoints important events along the way. For those of you who are not visual thinkers you might find the following document a bit confusing Click Here to see our work.
In doing our research we found that we're not the only one's with this belief. If you’d like to read a detailed comparison: Click Here
The bear's back and it's not pretty.
Jul/02/08 08:44 PM Filed in: 7 Education
and Research
So it’s been 5 1/2 years since the last bear market. From the high in October the Dow is just over 20% down and that meets the most common definition of a bear market. The Nasdaq joined the Dow with a loss of 21.3% for the year.
How often do we have bear markets?
They tend to appear every four to five years. (There have been 19 in the last 100 years.)
How long do they last?
An average of 18 months.
How far do they fall?
The market decline is an average of 36%.
What’s the good news?
They can provide great buying opportunities for equities. According to this Financial Times blog, in the last 100 years the best times to buy were 1921, 1932, 1948 and 1982. So while things might get uglier, the upside is this could be a great time to buy equities.
How is Belray handling the bear market?
Our strategy of investing like universities means we’re very diversified and our average portfolio is only slightly down for the year. Our rebalancing rules allow us to take advantage of these market declines.
Important Disclosure