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Preparing for the bear while you are running with the bull

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The current bull market started in March 2009 and is now in its 80th month. Like the bulls of the past, this current one will end, maybe not just now, but eventually. Our models don’t detect a bear market yet, but this is a "seasoned" bull – there were only two other bull periods since the 1930s which lasted longer than the current one. The graph below compares the duration of the current bull market with previous ones for the S&P 500. 

By historic comparison this bull is long in the tooth; it might continue for a while and set a new record or it might not. What can one do? Fight the market and reduce, exit or go short equity? Without a clear catalyst this has historically been a recipe for underperformance. Staying in the markets and trusting that this time will be different, is not a good idea. 

Instead, we advocate thinking more about risk management. It’s good practice to put your defence in place during the good times and be prepared for the turbulent periods. Bull markets don’t dry up, they pop. And when they pop you don’t want to lose much of what you have earned. 

The table below compares the investment gains over the 13 longest bull periods with what was lost in the following bear market assuming one stayed fully invested throughout. The average bear market wiped out more than 70 per cent of the investment gains from the previous bull market. 

Avoiding these kinds of large drawdowns results in a better long-term performance, even if you potentially give up some return during strong markets. 

This is where Sanostro's expertise comes in. We partner with top quantitative hedge funds to get access to the best market timing intelligence. The models we use are always vigilant but we only hedge our clients’ exposure when the models detect fragile markets. “Low touch“ is the formula that makes our overlays so cost effective. 

Do you want to continue to play offence and stay in the markets? Do you look for a strong defence team? Give us a call. 

Godefroy Schrago
Sanostro AG
Phone: +41/44 515 87 17
Mobile: +41/78 659 73 73
E-mail: [email protected]

We use the common definition of a bull market as a period returning at least 60% over a minimum of 6 months and a bear market as a downturn of 20% or more over at least a 2-month period. 

The numbers are indexed assuming an investment of USD100 at the beginning of each bull period. The average length of the 13 bull markets we studied is 48 months (excluding the current one). 

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