STREET DOGS: Investors rarely spot bear markets at the start
British stock market historian David Schwartz believed a professional asked to comment on poor market conditions was more likely to argue it was temporary than foretell the start of a serious bear market. "They will assume long-standing economic and political issues are already ‘in the price’, while fresh events are seldom considered serious enough to trigger a significant market downturn," he said. "History teaches that investors rarely spot a sharp downturn near its beginning. Major corrections that have taken investors completely by surprise include the bear market that began in August 1981 when Paul Volker raised interest rates to burst the inflation bubble that existed at the time. On that occasion US shares fell by more than 21% in just five weeks. In 1987 the world’s financial markets went into free-fall. As we now know, investors suddenly took fright from a potent combination of over-valued shares, global trade imbalances, inflation, and currency imbalances. These were not s...
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