SECULAR MARKETS – revisited

Secular Markets are a longer-term trends of the stock market, and particularly the Dow Jones Industrial Average or DJIA (US stock index) for our analysis. As you can see from the attached the graph, the DJIA, has moved in very distinctive trends since the 1920’s. The index moves in long-term trends of approximately 17 – 20 years in length.

A “secular bear” market is a stock market that trades essentially sideways, or downwards for most of the trend. Conversely, a “secular bull” market, trades mostly higher for the balance of the trend.

I think trends of this nature make sense from a “human behavioural” perspective . After 20 years of a secular bull market, usually marked by excesses of one kind or another (ie. Too much speculation, overuse of margin by investors (borrowing to invest), excessive capital investment by corporations (ie. Nortel 1999)) stocks have moved too high and trade usually at excessive valuations. This starts the next, new secular trend, a secular bear market. Like “the party”, the length of the “hangover” is usually related to the length of the party. Thus, 20 year bull markets are traditionally followed by 20 year bear markets.

This brings us to present day…….currently 10 years into a new SECULAR BEAR market. I found it very noteworthy that the DJIA broke through the 10,000 point level two weeks ago. Looking back, this was the 27th time it broke this level ! It first broke the 10,000 level in April of 1999, OVER TEN YEARS ago. Once again, this clearly illustrates the sideways market that we have been experiencing. What is truly frustrating is that we are probably only half way through this secular trend. Unfortunately, MOST investors and advisors are NOT prepared for this type of UP and DOWN stock market.

Most investors (and advisors) are relying on their investment experience and are utilizing investment strategies that were designed for the last secular BULL market (1982 – 2000). Indeed, most BUY and HOLD mutual fund strategies were born during this period of time, when investments experienced the biggest market expansion (or BULL run) in market history! These investment strategies were well designed for the secular bull market, but absolutely terrible for a secular bear market. FOR EXAMPLE :

1965 – 1982 Secular Bear Market

The DJIA started this secular bear market at 1000 points and ENDED this secular bear market at 1000 points (or 17 years later !) . The stock market endured FOUR very volatile swings in the DJIA, will ALL of the ups and downs generating moves of OVER 25%. (meaning the stock market moved UP and DOWN 4 times during this 17 years). The Buy and Hold investor would be lucky to collect dividends only (typically a less than 2% return).

THUS , it is very important to take advantage of these “swings” in the market , since they will have a clear and direct impact of the performance of an investor’s portfolio. Just think……you could have held a great basket of blue chip , US stocks (call the DJIA), the last 10 years and made NO money…….if you factor in the Cdn / US dollar exchange rate, you lost money. Clearly, this secular market takes a very different strategy in order to make money.

ARE YOU PREPARED FOR MORE VOLATILITY ?

HOW WILL YOU MAKE MONEY IN THIS SECULAR BEAR MARKET?

I’m very ready………you can call me at 613 – 271 – 6609.

Best regards,

Mike McGann
Director, Wealth Advisor