Fisher Investments Editorial Staff
Market Cycles

The Bull Turns Three

By, 03/09/2012

Anniversaries are without doubt significant to relationships. (Don’t believe us? Forget one and try speaking with your significant other.) And today’s an anniversary—the close of the bull market’s third year—and, in our view, likely the start of a more robust fourth year. But instead of Googling for an appropriate gift, we’d suggest pausing to reflect on the last three years.

From the market bottom on March 9, 2009 through March 8, 2012, global stocks have risen a cumulative 99.9% and 26.0% on an annualized basis—a much faster run up than many folks expected.* In fact, some noted the problems we faced in early 2009 were so severe and insurmountable, future returns would be, at best, tepid. But overall and on average, the bigger the bear market drop, the bigger the subsequent bull market run historically. And that’s been exactly the case this time.

Has this bull market been a smooth ride for investors? No—it never is. There have clearly been bumps along the way. Yet, despite the prevalence of dour headlines—another nearly ubiquitous fact of life in investing—the bull market continues. Among the major non-stories:

  • A double-dip economic retrenchment never happened. True, growth has fluctuated and been tepid at times—but real US and global GDP are back to all-time highs.
  • Investors in 2010 and 2011 experienced mid-year corrections that surely grayed more than their fair share of hairs. But corrections are always a possibility during a bull market run, and this one’s been no different.
  • The PIIGS, although still in the news, failed to ignite a sudden and disorderly breakup of the eurozone. Reality is eurozone officials continue to have every incentive to prevent exactly such a thing from happening.
  • US unemployment remains elevated, but it’s failed to stymie economic growth. In fact, economic growth typically leads any improvements in unemployment—a point we’ve detailed many times before.
  • Although Japan continues to recover, last year’s earthquake and subsequent tsunami failed to permanently cripple global supply chains and commerce.

None of this is to say fears can or should be easily dismissed. The simple fact is our “Stone Age” brains are wired to fear losses much more than appreciate gains. In that sense, any negative headline—regardless of how realistic—can seem fraught with peril and seem to necessitate action. That’s one major factor that makes investing such a challenge. Even the smartest of smart people have emotions and can be led astray when fear runs (irrationally) high. So, for those who’ve held the line through choppy markets the last three years, kudos to you. The market has handsomely rewarded the patience and discipline you’ve shown—and seems poised to do so again in 2012.

To be sure, it can be difficult to remain disciplined when faced with choppy markets and prevailing dour sentiment—sentiment that is repeatedly confirmed by major media. But for those investors who missed the opportunity of the last three years, it doesn’t mean opportunity doesn’t still exist ahead. Our research shows when bull markets persist into a full fourth year, returns are often quite strong. And right now, widespread underappreciated positives and pervasively dour sentiment suggest that should be the case again this year.  

Anniversaries are also a time to reflect, and that’s true here: Valuable behavioral lessons from recent market history can serve you well in even the best of years. Knowing how to analyze markets, economics, stock selection, politics, sentiment, etc., isn’t all that’s necessary to increase the likelihood of repeatable investment success—learning about yourself (how your brain works) and being aware of psychological pitfalls is equally critical.

*Source: Thomson Reuters, as of 03/08/2012. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of 24 developed market country indices. Returns are presented inclusive of dividends, the effects of withholding taxes, and use a Luxembourg tax basis.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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