Key insights
- The article discusses the average duration of bull markets, suggesting that the current one, at over three years and eight months, is approaching historical averages. While acknowledging that bull markets can last longer, it cautions against timing the market based on duration, as tops and bottoms are only identifiable in hindsight. The piece highlights the significant gains often seen in the early stages of new bull markets, implying that missing these can be costly for investors.
Through Thursday of last week, the bull market seemed unstoppable. Not even Broadcom's post-earnings crash caused investors to flinch. Then Friday came, providing a rough reminder that nothing lasts forever. Sooner or later, every bull market eventually yields.
This begs the question: How long do bull markets last?
If you need a number, it's just under three years. That's the figure suggested by mutual fund company Hartford, when counting markets since 1928, and confirmed by investment research outfit Bespoke Investment Group. Just take the number with a BIG grain of salt. More recent bull markets have been lasting measurably longer, although a handful have been shorter.
Whatever the case, with the current bull market now three years and eight months old, sizable stumbles may understandably have some investors thinking that the overdue pullback has finally begun.
Maybe it has. Just be careful about jumping to any such time-based conclusion. Again, not only are these averages made up of a wide range of inputs, nobody can truly say when and where a major market top has been made until well after the fact. Trying to do so can -- and often does -- end up doing more harm than good by leaving you out of the market when you should be in it.
It works the other way, too. While the average bear market lasts just a little less than 10 months, some are shorter, while plenty last longer. There are never any clear, obvious signs they've ended either, until after the fact. In other words, the odds of you successfully spotting a market bottom are slim.
The penalty for not being in the market right at the beginning of a new bull market can be steep, too! As Hartford goes on to point out, new bull markets experience an average gain of 13.6% in just their first month, and an average gain of 25.3% in their first three months.
Moreover, 28% of the S&P 500's (^GSPC 0.26%) very best single-day gains materialize in just the first two months of a new bull market, while 48% of the index's best daily wins take shape during a bear market. The other 24% of these big single-day gains happen in the remainder of the typical three-year bear market.
Even missing out on just some of these decidedly bullish days can take a surprisingly painful toll on your portfolio's performance. Hartford's number-crunching indicates that not being in the market for its best 10 days since 1996 would have cut your returns in about half, compared to what you would have achieved just by staying in an S&P 500 index fund ... even when it felt uncomfortable to do so.
Your best course of action, then, may be doing nothing other than riding out a bear market with the same quality stocks you owned heading into it. If you can be patient, you'll likely be better off in the long run.