The key question investors might ask themselves and the world after January’s rout in stocks is: are we still in a secular bull market, or has this been the beginning of a bear market?
My answer to this question is straightforward: I am an investor of “All Markets”, as Edward O. Thorpe described it in his legendary book, which is a very recommended read for any investor.
So I don’t bother whether we’re in a bull or bear market in stocks, but I instead want to know where a bull market is.
Because there is always a bull market somewhere.
This can be different asset classes, but also sectors within an asset class (value vs. growth stocks, late cycle / commodity stocks vs. early cycle cyclical stocks).
Right after the dot-com bubble burst in 2000, for example, it was the start of a secular bull market in deep value blue-chip, renewable, and emerging market stocks.
People holding tech stocks into the 2002s were not too happy; I am not sure if some long-term holders were actually able to deal with a 90% drawdown in Amazon shares from 1999 into 2002 and have been happily holding ever since. Probably not.
Looking for Bull Markets
So the key here really is trying to figure out what is going on in the world and where we might be at an inflection point. Inflection points are points where public opinion suddenly rapidly turns from one extreme to another. These are then harbingers of bull and bear markets in particular investments.
For everyone who doesn’t have a memory back to the dot-com bubble and after, the Covid crisis has outlined this very well:
The advent of the Omicron variant in November 2021 was the inflection point for Covid: vaccine stocks posted all-time highs as everyone was scared of a more dangerous variant.
The opposite turned out to be the case, Omicron was a more benign variant, and countries started opening up into January.
This caused a misjudgment of how sticky inflation would be over the coming months, as demand kept strong and supply chains still struggled, causing the emerging bull market in base metals and energy to continue.
Historical Bull and Bear Market Swings
If anyone could detect the change of Bull and Bear market cycles at the right time and shift their asset allocation accordingly, this would be the most beneficial to returns rather than re-allocating weights within an asset class.
Bull Market Examples:
The dot-com boom 1996 – 2000
Renewable Stocks 2001 – 2007
Russia & Emerging Markets 2000 – 2008
Precious Metals 2002 – 2011
US Stocks 2010 – ??
Tech Stocks 2010 – ??
Crypto 2015 – 2018
Crypto 2020 – ??
Soft Commodities 2020 – ??
NFTs 2020 – ??
‘Reddit Stonks’ 2020 – 2021
Bear Market Examples:
Commodities 1990ies
Value Stocks 1995 – 2000
Precious Metals 2011 – 2018
Emerging Markets 2009 – ??
Soft Commodities 2012 – 2020
Energy Complex (Oil,..) 2015 – 2020
‘Reddit Stonks’ 2021 – ??
What’s in for 2022?
Again, everybody needs to do their own research (DYOR) on this topic: where do you see inflection points? Where is public opinion turning? Turning points from one extreme to the other indicate the start of bull markets.
For this, everyone needs to read papers, watch the news, look at valuations and public opinion. I will write more about this in a series called ‘Behavioural Investment 101’ to be released soon.
