SIMON BROWN: I’m chatting now with Andrew Dittburner, chief investment officer at Old Mutual Wealth Private Client [Securities]. Andrew, I appreciate the early morning time. [It was] a great [email] that you put out, packed full of data around bear markets – 95 years of data.
The one point that stood out for me was [that] the decade of the Depression had 14 bear markets, which is just terrifying. But the key point around bear markets is they kind of show that [there’s] on average a bear market every four years. The oddity is not the bear market we find ourselves in now, which is 20% off the highs, but actually that the prior 13 years [were] just go, go, go and upwards. That really was the unusual thing.
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ANDREW DITTBERNER: Morning, Simon. Yes, I think investors have forgotten what it feels like to go through a bear market. We obviously had the short downturn in 2020 that lasted I think a month, if that. But prior to that we’ve got to go back to 2008. So we’ve got used to, I suppose, this low interest-rate environment that’s propped markets up to now. Suddenly we get this pull-back which, when you look back over history, I think hit 22% down; I think [that] was the bottom but it could still be lower. I think we sit around 18% – and we are referring to the S&P 500 here.
But now suddenly I’m getting phone calls from some people who aren’t even our clients saying, ‘Should we be selling?’. That, I suppose, highlights the degree of fear that this market [brings], given that we haven’t been through a bear market in such a long time.
SIMON BROWN: Yes. If you came into the market post the 2008/9 financial crisis, you don’t know what a bear market is. It’s we oldies who have some experience there. I remember my grandfather talking around the decade of the 1930s. He was trading in bucket shops in Durban and would say sometimes there would be weeks of everything going red every single day.
You also pulled the data – the average duration [was] about 316 days. We are a little halfway through that. The average decline around [was] 37%; we are down around 20%. We are talking S&P here. It suggests that probably on the data and on the average we are probably a little over halfway through this bear market. Truthfully, we might have some more downside and it might go on for a bit. But this is not going to last forever, and we are probably closer to the end than the beginning.
ANDREW DITTBERNER: Yes. We are referring to averages here. We know that every market’s different. There are different factors at play. And if you think about the negative news flow that we have endured this year, it should be no surprise that we sit in this position. We’ve got inflation on every year’s high, so 40 years’ rising interest rates. [There’s] war, supply-chain issues, China lockdown. Now there is talk of potential recession.
Interestingly, if you actually look back over 95 years, I think only one, [or] two or three times, have we had a protracted bear market without a recession. [I’m] not saying the bear market causes recession or vice versa. But typically the two go hand-in-hand.
Obviously there’s a lot of talk at the moment about recession, but what we know is that over time markets move higher.
I think this comes back to the point. Also if we look at the averages that we spoke to earlier, the average from the previous peak back to that peak is about five years. I think this talks to the point that investing, particularly in growth assets like equities, is a long-term game. You’ve got to have your strategy right. And if you are in the market, a period like this can’t make you exit if your strategy is in place.
SIMON BROWN: Yes. That’s just it. It is around the long term. Also the second graph you show is from 1927, which includes that decade of absolute horror markets. But if you had taken your investment and reinvested the dividends, you’d have done a 9 000-fold increase. Now, you’ve also got to be 95 years old, which is a lot. [Andrew chuckles] But it shows that point – that markets are volatile. But actually if you … you zoom out in the chart, the returns are real.
ANDREW DITTBERNER: Yeah. That’s an astonishing number when you think about it. If you’d put $1 million in the market 95 years ago, you’d be worth $9 billion today. Not many people live 95 years, especially if you had a million dollars 95 years ago.
This is exactly it.
If you want to get to the promised land that investors want to get to, you’ve got to be able to endure periods like this. You can’t fret when the market pulls down 20%. Rather, you should be actually looking at it as a potential opportunity to get more exposure.
It comes back to the point [that] if you’ve got your investment strategy correct in terms of asset allocation, being well diversified across different asset classes, you should be able to sleep fairly easily in times like this.
SIMON BROWN: Yes. And the other lesson is that when a child is born, on their day of their birth, don’t buy them presents, buy them shares and they can keep them going. Ironically, my grandfather made it to 95, so he would’ve done it.
We’ll leave that there. Andrew Dittberner, chief investment officer at Old Mutual Wealth Private Client [Securities], I appreciate the early morning.
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