A History of JSE Bear Markets

Our first lesson is an important one. You need to understand that the current bear market is normal. In fact it is welcomed for the wily investor. To quote Warren Buffet "Be scared when everyone is greedy and be greedy when everyone is scared". Now think of this - the US markets have seen their greatest drops since the great depression and Buffet has started buying American stocks!



Look at the chart above of 11 significant downturns on the JSE over the last 21 years. There have been many more "mini bears" but the ones above are the grown-up bears. Grown up bears last longer than 90 days and represent a decline of more than 15%. The periods above are the only times this has happened. Each time the market bottoms-out, it has risen to higher than all the periods before! These are normal cycles that flush the system as contrary to popular belief the markets are not that efficient. Markets either price things to high due to over exuberance, which leads to collapses and then the subsequent collapses go completely overboard in the ensuing panic. All the investment greats recognised this as golden opportunities for buying stocks for far less than they are worth and selling them for far more than they are worth. How else do you think these men made billions of dollars?

Back to the chart - you will note that we are 154 days into the current downturn and the JSE ALSH is at 18,100 (a record 44.5% down!) Yummy - this looks like the time to pack our rifles and doing some hunting! But before we willy-nilly buy any old stocks (which will lead you to fail) we need to take you through a few more lessons based on our research of the last 18 months. After all, a market is a tide upon which all boats float when it rises, but not all stocks are likely to recover from the downturn and will be smashed against the rocks as the tides drop, never to float again. With JSE PowerStocks there is a detailed and thorough process that needs to be followed to pick those Phoenixes that will rise again from the ashes.

NEXT UP : Bulls and Bears of the Past