Over the past few years I have spoken to many investors who share a similar frustration;  "Why does my investment portfolio look the same or less (in value) as it did in 2000?"  Looking back over the past 10 years makes the answer a bit easier to explain as more points of confirmation continue to show themselves.  Explaining a Secular Bear Market during its beginning stages can be a bit more difficult as many hold skepticism to a changing environment due to their senses still being under the influence from the bingeing that occurred during the Secular Bull that had just ended. (Think back to the late 90's)!  The reality is that we are in a different market and economic environment today than we were in the 80's and 90's.

Secular market trends are defined as "long-term trends that last 5 to 25 years and consist of a series of sequential primary trends.   A secular bear market consists of smaller bull markets and larger bear markets; a secular bull market consists of larger bull markets and smaller bear markets."  Some have tracked these trends back into the 1800's.  We'll take a look at the last 4 Secular Trends that the markets have navigated and the one currently playing itself out.

1929 to 1954 - we experienced the longest Secular Bear market spanning 25 years!  Preceding this market we encountered the "Roaring Twenties" where the U.S. developed mass production from industry.  A euphoric bubble was created around the stock market with the idea of making easy money through the use of leverage.  Many attribute "Black Thursday", when the market began its aggressive downward movement, as the triggering event that led to the Great Depression.  Richard Salsman sums up this period in history very well by saying, "Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even".

1955-1966 - this Secular Bull saw a cumulative return of approximately 155% over its 11-year period.  Fueled by a post-war economy, low inflation and interest rates, the tone was positive.  Another phenomenon began, mutual funds!  This allowed investors access with lower capital requirements to pools of stocks, diversification and the perception of a safer investment.

1966-1982 - this period in the market was not overwhelming in terms of loss, it simply meandered sideways virtually going nowhere for about 17 years; beginning and ending at essentially the same level!  We saw Vietnam, the oil embargo, stagflation and Nixon's resignation.  This is the last example of a Secular Bear market that we have experienced (other than the one we are currently navigating).  The Baby Boomer population which holds approximately 50% of all assets in the U.S. were still coming of age during this period and had not hit their prime earning and investing years yet.  The peak of the boom was in 1957 with 4.3 million births in that year.  Even the earliest born in this demographic during 1946 would have only been 20 years old at the beginning and 36 years old at the end of this period.

1982-2000 - 1300% gain during this period!  Not much more needs to be said.  The market essentially went straight up during this time-frame with a few hiccups along the way in 1987, 1990 and 1998.  Supply-side economics, technological breakthroughs and the internet catapulted the markets to record levels.  Everyone remembers the dot-com bubble, Greenspan's famous "irrational exuberance" speech and the feeling of easy money in the stock market.  This era cemented the "buy and hold" and "buy on the dips" strategies.  As mentioned in our last newsletter, the success experienced by investors with this strategy was extraordinary.  If you simply purchased the market in 1982 and held it the entire period you annualized a staggering 16.3% return.  What has been problematic over the last 10 years for folks navigating retirement or getting close to retiring is that many of the financial planning assumptions that they planned for were developed during this period.

2000 - ? - if an investor entered the market in late 1998 and simply held throughout the last 12 years they would have essentially the same amount as their initial investment.  If you factor in inflation, you have a loss.  We've seen the bursting of the tech bubble as well as the housing bubble;  9/11 and war.  The environment since 2000 has been volatile leaving "buy and hold" investors wondering why it's not working after nearly 20 years of previous success.  We are 10 years into this Secular Bear environment and since we are not in the business of predicting the future we won't guess on the remaining duration.  Volatility and pessimism will continue to be par for the course with starts and stalls in the market that will suck in the novice investor and chew them up as it has done in the past.

Looking back in history can be a useful guide in gaining perspective on how markets have reacted over time and through different socioeconomic cycles.  Human psychology has played a critical role in these cycles as well.  Particularly the emotions of fear and greed.  Bubbles are created by both the greed associated with attaining financial success, which typically acts as the catalyst, and the fear of not participating pushes them to the bursting point as witnessed in the 2000 tech-bubble and most recent housing bubble.

At Volt we strive to understand these cycles and how they influence the ability to make money in the market.  We believe it is critical in this environment to be nimble and take a tactical approach to portfolio management.  We do not believe in buying and simply holding in a Secular Bear environment.  Our strategies are designed to step aside from the market to protect capital during periods of high risk and make money during periods of lower risk.  If you would like to learn more about our strategy please don't hesitate to contact us for more information.