wealtharticles-what_bear_markets_taught

What Bear Markets Taught Me, Dr. Mark Mobius, Franklin Templeton investments

Bull Markets Have Outlasted Dear Markets
The most important thing I've learned in the last 40 years of investing is that bear markets are shorter in duration than bull markets. Also, in percentage terms, bear markets go down less than bull markets go up.

I know that many find that hard to believe, since from a psychological point of view, good times seem to end rather quickly while sorrows seem to last forever. However, an analysis of the historical numbers shows that is true. In studying all the bull and bear markets since 1988 we found that, on average, a bull market lasts 22 months while a bear markets lasts six months. Moreover, the average return of bull markets was 113% while bear markets have averaged a 32% fall.

Since the beginning of 1988, the longest bear market we have seen in emerging markets lasted for 17 months, from April 2000 to October 2001, when the MSCI Emerging Markets Index declined 49% in U.S. dollar terms. In contrast, the longest bull market lasted for 47 months, between December 1990 and November 1994, when the MSCI Emerging Market Index returned a whopping +251% in U.S. dollar terms.

The Best Time To Invest
No one is able to accurately predict the onset and end of bull and bear markets on a consistent basis. Therefore, when anyone asks me, "when should I invest in the stock market?" my answer is: "the best time to invest is when you have money." Given the historical evidence above in favor of bull markets, there is a good chance of succeeding if we are invested rather than if we are not. When we say "invest" we also mean "investigate", since investigating companies' balance sheets, profit and loss statements and management will enable us to uncover investment bargains

The proven method of succeeding in stock market investing, safely, over many years is value investing. Value investors have been able to earn substantial long-term returns, since they (1) buy when stocks are cheap, or undervalued, and (2) select stocks in companies that have strong balance sheets, good profitability and the ability to generate consistent earnings.

Take advantage of buying opportunities
When is it most possible to buy cheap stocks? When everyone else is selling, and probably despondently selling. In many cases, the prices of fundamentally sound stocks decline due to poor market sentiment or low investor confidence rather than due to any deterioration in corporate fundamentals. Also, a stock is sometimes beaten down to levels which already take into account the risks associated with the company. Investors should always maintain a long-term view and be ready to take advantage of these opportunities.

The reverse also stands true - the best time to sell is when everyone around you is rushing to get into the market. If a market is at the height of its popularity, prices are no doubt at their peak too.

Currently markets around the world are substantially down and we are probably nearing levels of maximum pessimism. Is it time to invest in emerging market equities?