Last week was another bad week for markets both in SA and globally. Since the end of February when coronavirus (Covid-19) panic started and the sharp drop in the oil price, the markets have dropped more than 20% and are now classified as a bear market, something we have not seen since the 2008/2009 financial crisis.
How long do bear markets last?
History shows that the faster a market goes into a bear market, the shorter it tends to be. This current drop has been the fastest drop in recorded history, but how long it can last is anyone’s guess. The shortest bear market in history was in 1990, which lasted less than 3 months.
As you can see below, a recovery often mirrors the speed of the decline, so trying to time the market when the drop has been so sudden is especially dangerous.
In 2008/2009, the MSCI took 8.5 months to fall 20%. It took just 15 days for the market to drop 20% since the 24th of February 2020.
Should you invest?
It’s perfectly natural to be worried, but big losses bring certain benefits. Yes, shares can be volatile during times like these, but that is why they earn higher growth. It is the level headed investor who stays the course and tolerates this volatility who enjoys the higher growth over time.
Of course, the big unknown at this stage is we have no idea how long the tsunami will last, whether it will get still worse, and the impact on the sustainability and profitability of many businesses. In the past, returns have averaged 52% in the year following a bear market. Markets are currently on a 30% discount, they could always go to 40%, but in the long term, buying cheaper now is bound to bear results.