How to Thrive in a Bear Market

Castlepoint Blog: Investment Planning, Kendall's Counsel, Market Cycles, The Point
November 10, 2022

2022 has been a disappointing year for investors. Lately, the markets have been dropping fast again, pushing US stocks back into a bear market, which means stocks have dropped by 20% or more from the market’s high point. 

It seems we are being bombarded with negative economic reports daily. As a normal human being, hearing these economic and market reports can naturally create fear or concern for the future.

You may be asking if you should be doing something different right now, especially if there is more pain to come in the markets and economy. 

Let’s keep things in perspective. Historically, bear markets are not all that uncommon. This current market is the 14th bear market in the history of US stocks, going back to the end of World War II.1 In other words, on average, we have had a bear market about once every five years. 

Although they don’t happen every year, bear markets are part of investing, and we should expect them to happen again in the future. To put it into perspective, you will likely experience six more market drops of at least 20% if you continue to invest over the next 30 years. 

You may find comfort in knowing that the last 13 bear markets eventually ended and gave way to 13 bull markets.1 And these bull markets always pushed stocks to new all-time highs. We should not expect a different outcome for this 14th bear market. It will eventually end, and it will lead to the birth of the next bull market. 

One question to ask yourself is, “Am I allowing my emotions to drive a reactive decision, or am I looking to history to make the best choice proactively?” 

Most of us would be much better off if we left our emotions out of our investment decisions. We are undoubtedly in the “emotional” state of markets, where many investors choose to be reactive and irrational. Don’t fall into the herd mentality that typically creates a sell-low and buy-high outcome. 

Additionally, research shows that the more you pay attention to your portfolio during market volatility, the more fearful you tend to feel. This hyper-awareness increases the odds that you will make a more emotional and reactive decision. In other words, when emotions are high, wisdom tends to be low. 

One of the best ways to counter your emotions is to become a student of market history.

For example, if you look at the S&P 500 index, you will learn it has delivered an average annualized return of 10% since 1945. Which is more surprising — this double-digit return average or the fact that the S&P has experienced 13 declines in the index of 20% or more? The biggest decline was about 57% peak to trough during the 2007-2009 financial crisis. The average drop is around 33%.2

We also know that the average length of these bear markets is around 367 days or right at a year. The longest period was back in 1973-1974, when it took 630 days to end.3

On the other end of the extreme, the 2020 version during the COVID crisis lasted just 33 days but dropped 34% from peak to trough.4 The common trait in every one of these bear markets is that they eventually ended. 

You may be wondering what we should expect next in the markets and economy. The only truthful answer is that no one knows for certain, as there is never a crystal ball. What we do know from history is that markets tend to recover well before the economy does. And this is one of the key principles of being successful with your investment plan — don’t look to economic news to determine investment decisions. 

The Great Recession is a great example. Stocks got hammered from October 2007 through March 2009 to reflect the financial crisis and bad economic data. Then, on March , 2009, when it seemed all hope was lost, stocks finally started going up. And they went up a lot. 

Over the next 13 years, they rose higher and higher, highlighted by the S&P 500 index increasing from 665 to 4,000 or higher seven times. The Great Recession did not end until June 2009, and it wasn’t even known that it ended in June 2009 until much later.5 

The market preceded economic recovery, but what’s interesting is that stocks did not wait for the economy to start the next bull market. In other words, waiting for the recovery would have meant missing out on big stock returns.

It is uncomfortable to stay invested in times like this, but history says the highest stock returns tend to occur after the bear markets end. Assuming you have a sound investment plan aligned with your long-term goals, your discipline will eventually be rewarded with higher returns. 

We would all be wise to heed Warren Buffett’s advice — “Be greedy when others are fearful. Be fearful when others are greedy.”6



The content of this article is developed from sources believed to provide accurate information. The information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. All expressions of opinion are subject to change. This content is distributed for informational purposes only, and is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products or services. Past performance is not a guarantee of future results. Index performance does not reflect the expenses associated with the management of an actual portfolio.

Castlepoint Wealth Advisors | Oklahoma Wealth Advisors | Kendall King - Founder & CEO

Kendall King, CFP®, AEP®

Founder & CEO of Castlepoint Wealth Advisors

Kendall is the Founder and CEO of Castlepoint Wealth Advisors, an Independent Wealth Management firm in Oklahoma City. He is responsible for the strategic direction and vision of the firm, and serves as lead advisor to a diverse group of clients, with special focus on entrepreneurs. With more than 18 years experience in advising clients on a wide range of wealth management topics, Kendall possesses extensive expertise and specialized knowledge regarding IRA and retirement planning topics.

Read more Kendall’s Counsel blog posts and articles.