I know market timers use secular bears as their justification for market timing. What I didn't know was that one of the “classic” secular bear markets (1966-1982) was a myth. The following is part of a discussion I had with someone at Suite101.com. His comments are in italics. My replies are in regular font.
Well, the market was about nominally flat from 1966 to 1982.
Not true. According to Ibbotson’s data, the S&P500 returned 6.8% annualized during the period 1966 to 1982. Here's my handy stock market returns calculator for any period from 1926 to 2001.
But check out what it looks like after adjustment for inflation! Positively gives you the shivers.
Unfortunately, inflation acts on bonds and cash as well as stocks. So yes, there were few places to hide with inflation so high during that period. Don’t have the numbers for small-caps, but I believe they held up well during the period, especially from 1975.
My chart of the period shows the Dow hitting 1000 first at the beginning of '66, then late '68, then briefly topping it in late '72 - early '73, then again in '76 and early '77, then again in late '80 - early '81, before finally breaking through in late '82. If that's a total of 6.8% for the S&P for the 16 years, that's hardly much better! (Or, maybe he's calculating total returns, including dividends.)
Yes, Ibbotson calculates S&P500 total returns, which includes reinvesting dividends. Your Dow chart only shows price which doesn’t include reinvested dividends. The Dow total return index would likely have similar annualized average return to the S&P500 total return index.
Incidentally, here is the actual total return S&P500 index from Ibbotson. Numbers are at year-end. You will notice the year-end 1982 value is 3 times as great as the year-end 1965 value (or beginning of 1966).
1965 53.008
1966 47.674
1967 59.104
1968 65.642
1969 60.059
1970 62.465
1971 71.406
1972 84.956
1973 72.500
1974 53.311
1975 73.144
1976 90.584
1977 84.077
1978 89.592
1979 106.113
1980 140.514
1981 133.616
1982 162.223
I was curious about small-caps during the 1966-1982 period. What I found was truly astounding. Again, the numbers (representing year-end) are from Ibbotson. If an investor owned an equivalent mutual fund (tax-sheltered), they would have made 10 times their money!
1965 72.567
1966 67.479
1967 123.870
1968 168.429
1969 126.233
1970 104.226
1971 121.423
1972 126.807
1973 87.618
1974 70.142
1975 107.189
1976 168.691
1977 211.500
1978 261.120
1979 374.614
1980 523.992
1981 596.717
1982 763.829
So, the people calling the 1966-1982 period a secular bear market are obviously ignoring the other areas available in the stock market.
I think the lesson here is clear. A broadly diversified portfolio, like ‘slice and dice’, should serve long-term investors better than one devoted solely to large-cap growth stocks.
