Bear markets are terrible for permabulls who just buy and hold forever. The stock market tanks 40%+ and it takes years for the stock market to recover to its previous all-time high. During those years these permabulls are underwater with massive losses.
However, bear markets are good for savvy long-term investors and traders who know what they’re doing. Bear markets yield massive profits for investors and traders who can predict the bear market and predict the start of the next bull market. Every crisis is an opportunity, and bear markets are huge opportunities. Here’s why.
The first rally of a new bull market rally is always very fierce
Mean-reversion states that when you stretch an elastic band too much in one direction, it will snap back very fiercely in the other direction.
This means that after the stock market crashes in a bear market, it will rally like crazy in the first leg of a bull market. This first rally will yield massive profits for investors and traders who can catch the bear market’s bottom with a reasonable degree of accuracy.
Here’s the first big rally after the 2007-2009 bear market. The S&P soared 83% from March 2009 – April 2010, a mere 13 months!
Here’s the first big rally after the 2000-2002 bear market. The S&P soared 47% from March 2003 – March 2004, a mere 1 year!
Here’s the first big rally after the 1973-1974 bear market. The S&P soared 60% from October 1974 – July 1975, a mere 9 months!
Here’s the first big rally after the 1968-1970 bear market. The S&P soared 52% from May 1970 – April 1971, a mere 11 months!
As you can see, bear markets are followed by very fierce rallies over a relatively short period of time. So you will achieve massive returns if all you did was buy $SPY (S&P 500 non-leveraged ETF) at the bottom of the bear market and held it for 1 year. Post-bear market rallies can be very choppy on a day-to-day basis, but the overall uptrend is very strong and persistent.