Bear Market History & the Lessons of Losing Money

Growth, Value & a Reminder of the Basics of Breaking Even

This piece is designed to add color to our Bear Traders post, which showed the five largest market declines since the 1960s. That piece explained the brutal path to getting back to break-even across the history of bear markets using the S&P 500. This brief paper will do the following:

Show how growth and value stocks fared in these market corrections
Display the valuation discrepancies between “value” and “growth” stocks today vs prior peaks
Show how these stock market crashes impacted valuation spreads & where the greatest risks are now

KCR has intentionally omitted reviewing the longest bear market in US history during the Great Depression. Galbraith and many others have written entire tomes about that market cycle. While certainly in the probability distribution, we felt trying to tackle that here would do the topic a disservice. KCR also omitted the Covid crash, which could, technically, be deemed the shortest bear market in history due to its recency and brevity.

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Bear Market Graph: A Reminder of the Grinder

To our knowledge, nobody can predict the frequency of bear markets, but we do know that all bull markets do eventually end. Our research has demonstrated that valuation levels today are at record highs. This problem is exacerbated by a dearth of safety and protection in fixed income markets.

The chart below shows how value and growth stocks fared in the bear markets we referenced in Bear Traders. KCR believes the message is simple: even in the shortest bear market of 1987, the losses were severe.

Value Growth Both Take a Beating in Bear Markets…

As the following charts show, the time to breakeven was lengthy and brutal.

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Value Investing in Bear Markets

KCR believes the brevity of the Covid crash has allowed investors to forget the fear that grips people in corrections. Remember how you felt in the depths of the last bear market in 2008? Be honest. That was brutal even for industry legends.

The chart below shows

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ADDITIONAL READING

The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra reading for anyone seeking out more information related to the topics above.

Disclaimer

The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital Research, LLC and its affiliates (collectively, “Kailash Capital Research, LLC ”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital Research, LLC . In preparing the information, data, analyses, and opinions presented herein, Kailash Capital Research, LLC has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital Research, LLC , however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital Research, LLC and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital Research, LLC – All rights reserved.

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