This is an important topic, and strikes at the heart of LTB&H.
1. First, those 15 to 20 year-long sideways markets were preceded by equally long bull markets. If stocks have been going up, year after year for many years, it is very difficult to convince investors to be cautious. The initial response to the early warning signs is going to be universal disbelief, and an expectation that the recent past predicts the future. This is just human nature.
2. Second, those secular bear markets (15-20 year duration) started out just like the cyclical bear markets (6-18 month-long duration, which briefly interrupt the secular bull markets 2 or 3 times every decade). And, again, the universal expectation, for the first year or two of the secular bear market, is that there will be a return to good times soon. In 1930, most people thought the bear market would be over by 1931. And, if the U.S. government hadn't done some really stupid things with interest rates and tariff wars, the Depression quite possibly could have been over by 1931 or 1932. Likewise, in 1990, virtually no Japanese would have thought that the economy (and the stock market) would not have recovered by 2001. By the end of a secular bull market, the memory of secular bear markets is gone.
3. there are some signs that would indicate we are entering a secular bear:
A. high inflation, or high deflation. Mild inflation or mild deflation, by contrast, are consistent with a healthy economy.
B. a freeze-up of capital markets, with no one willing or able to lend, and/or no one willing or able to borrow.
C. collapse of world trade.
D. a longterm trend of rising interest rates, or
E. very low interest rates that fail to stimulate consumer spending.
Unfortunately, all of these problems start out small, and get steadily worse, and you are several years into them before you realise that the problems may not get fixed for a decade or two.
So, you won't be able to know ahead of time. There is no way to time it. The only way I can think of, to prepare, is to assume any cyclical bear could turn into a secular bear, and invest accordingly (eliminate debt of all kinds, keep cash equal to 5 years of living expenses). That means giving up a lot of the potential gains available during bull markets. |
