Some good news: We’ve been in a bear market longer now – 844 days since the S&P 500 peaked at 1551 on March 26, 2000 – than at any time since the 1930s. With the S&P down 41.5% to 906, that’s good news because it’s very similar to that thing at the dentist, where you’re really beginning to sweat after 40 minutes in the chair, and the pain – well, I know about the Novocain, but even just where your lip is being squished against your teeth, used by the dentist as an armrest, or Mr. Suction is sticking into that thing that connects the bottom of the back of your tongue to the bottom of your mouth – well, my point is, you’re really ready for this to be over, and the good news is that a lot of the worst is behind you.

The difference being that the dentist generally knows he’ll be finishing up in about 20 minutes – your tooth (without meaning to offend you in any way) is not all that unique – whereas with a bear market, well, who knows?

The latest Barron’s (thanks to John Hook for pointing much of this out to me) pegs the 1/11/73-10/3/74 bear market decline at 48.2% over 630 days and the 8/25/87-12/4/87 bear market decline at 33.5% over a mere 101 days. The NASDAQ has plunged 73% since 3/00, the worst US index drop since the Depression.

Of course, you’ve only lost this much if you believed you had this much when prices were peaking. If you realized it was ‘unreal’ (but held on to avoid paying taxes, or because you were just mesmerized and hoped it might go even higher), it’s a little different from losing money you had actually earned by the sweat of your brow.

But undoubtedly, many evaporated hundreds of billions did represent ‘real’ money, not paper profits, much of it lost by unsophisticated investors lured into the market at late stages of the bull market by its nearly irresistible call. Innocents, you might call them.

“The Massacre of the Innocents” – and how appropriate that a painting by that name by Peter Paul Reubens, expected to fetch $9 million at auction, recently brought $76.7 million. For a single painting. A bull market in massacres of the innocents.

Anyway, it’s good that Fear and Loathing are now giving Greed a good run for her money as people contemplate the stock market. Should Despondency and Capitulation join the party – let alone Despair, most welcome guest of all – we will know the worst has past.

Herewith three more of Dick Davis‘s 35 tips. In fairness to Dick, I should say it’s my own fault you were not reading these six months ago, when he offered them, and when their off-hand reference to ‘a bull market’ would have been somewhat less jarring. But the great thing about Dick Davis’s advice – with 90% of which I agree (and about the other 10% of which I am likely just wrong) – is that it’s basically timeless.

Item 26: Stick With Your Winners

If you buy a stock at 50 and it goes down to 45 and you’re tempted to buy more, you may want to resist the temptation. It hasn’t gone down enough. But if it’s a solid, long term holding and it drops to 37 and its problems appear temporary, averaging down can be a good idea. Averaging up is an even better idea, especially in a bull market; yet we rarely add to a stock as it goes up. A retailer re-orders his best sellers, not his laggards. In the stock market, with exceptions, eliminate your poorest performers and keep your best merchandise.

Item 27: This Time It’s Different

Over the market’s long history, the mantra, ‘this time it’s different’ has never worked. Yes, there is always change and the market reacts to that change. For example, an era of low inflation and low interest rates (which makes earnings worth more), or a time when money markets yield under 2% which causes money to look elsewhere for return, or the artificial demand created by short covering from proliferating hedge funds, all may cause stocks to sell at higher multiples. CNBC is another change. The millions of investors worldwide who receive the latest stock market information instantaneously and simultaneously may dramatically compress reaction periods and cause more volatility. But until human nature changes, until fear and greed disappear, market basics will persist and history will repeat itself: bear markets will be followed by bull markets; both will go to extremes; the consensus will always be wrong at the top and bottom, the market will need worry or skepticism to go up and optimism or complacency to go down; the market will always regain its sanity, eventually, and revert back to the mean, and many other basics rooted in human nature will not change. Most of us are ‘battle-scarred’ enough to know that a ‘this time is different’ approach is not valid. I’m not so sure about our children. When the fever hits the greed button again, I suspect memories of the dot-com bubble will quickly fade.

Item 28: Market Symmetry

There is a certain symmetry to the market: an ebb and flow, a giving and taking away that gives it balance over time. The greater the excess, the greater the reaction is likely to be, just as the higher the platform, the deeper the dive. Nasdaq climbed 4 fold to 5100 in 4 years; then gave it all back in 6 months. The correlation is far from perfect. That would be too predictable. What is predictable is that the 21st century will repeat the same basic cycles as the 20th century: recessions followed by recoveries and bear markets followed by bull markets, the long term bias likely to be on the upside. Sometimes we get so immersed in the minutia of daily news that we lose sight of the big picture.


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