Detailed study of leaders versus broken stocks, market breadth and what it means for performance in the next bear market
Some good weekend reading about markets and how to profit from the next bear market, which may last a long time.
I hope you enjoyed last week’s Short Thoughts piece. The article got a better response than I expected, so I figured while I was on the tail of that particular beast, I would continue to hunt it down.
Short Thoughts: The AI Cloud Oligopoly, Stages of Grief & a Flashing Bear Market Indicator
The first thing was to collect and stitch together decades of data. I have to say, I am impressed by the folks at Siblis Research. Siblis’s data service was above and beyond, even over the weekend, multiple times. A first-rate operation. By the way, I am paying them, they are not paying me.
Now, on October 6, the S&P 500 closed at a record high. Not one single aspect of it was dramatic. It was one of those trending new highs, no significant volume, that, if it holds, leads to some mild consolidation, maybe a few scary 1- or 2-day drops but a fairly quick resumption of the trend.
The October 6th new high in that respect looks no different than the high on June 2, 2026, or the one on August 13, 2026. Below, see the red arrows.
In those two most recent examples, the market consolidated for a bit before rallying the cavalry to yet another new high.
Significant new high or not, October 6th is the last one, the reigning champion.
Now, technical analysis is the game all the pod shops and algorithms and non-humans play, and they do it really well. I am not going to compete with them.
What they do not generally do is history. And I love history.
The year is 1980. 46 years ago. I was 9, and KISS was my favorite band. They used to sell KISS cards out of ice cream trucks that would crawl through the neighborhoods where I lived.
They were not cheap either. They came with a bubble gum stick inside. It was not my favorite.
I tell this story to all the young ones, because yes, 1980 happened, and the 1970s before it and so forth. It all really existed, and people lived much like they do now. Without smartphones, we needed KISS cards, and bubble gum.
That is pretty much the whole difference between people then and people now.
The difference between investors then and now, though, that is a world of difference.
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For one, stock trades are free to anyone with a computer or smartphone, and stock quotes are ubiquitous. Back then, no one had any information, and to do stock trades, brokers would take hundreds of dollars. It seemed impossible.
The back of the newspaper’s sports section typically had the prior day’s stock tables, which I started reading at a young age, along with my sports news.
As I have mentioned, the first stock that caught my interest was AmMot - that was the abbreviated business name in the stock tables. This was American Motors, which owned Jeep. I had lots of little green men, and I was a fan of Jeep. MASH was a big hit on TV at the time.
American Motors stock, which I saw had been at $2 5/8, had moved to $4 1/4 over some months.
When I brought that up, my Dad, who had informed me what American Motors did, sternly pronounced that nobody ever made money in stocks. He told me that more than once when he would see me looking at the stock section.
This was true to my Dad, or it seemed true. His entire adult life, up to his 33 or so years at the time in the early 1980s, no one had made money in stocks, especially adjusted for inflation.
I have walked us through that one before. Below, the inflation-adjusted S&P 500 (and its ancestors) over about 100 years, from my post, Foundations: U.S. Market Structure & Value.
This shows that from 1966 to 1982 - from the time my dad was 18 to 34 years old - the S&P 500’s inflation-adjusted price fell about 53%, comparing annual-average levels and excluding dividends.
“No one ever made money in stocks.” Seemingly based in fact, or at least I can understand today how he would have felt that way.
However, this was not the only long period of poor inflation-adjusted returns. 1929 to 1949, roughly two decades spanning the Great Depression and a great deflation, the real price return of the S&P 500 was negative 58%.
More recently from the top in 2000 through 2011, the real price return of the S&P 500 was roughly negative 40%.
These three figures are calculated from Shiller’s monthly data deflated by annual Bureau of Labor Statistics (BLS) CPI. I used annual averages for the first two periods and from peak month to trough month for the third period. The chart’s dots are December closes, which can vary from the actual peak and trough.
These are real price declines that ignore dividends, and over spans this long the dividends matter a great deal depending on how they are handled by the investor.
With dividends reinvested, the 1966 to 1982 loss shrinks to roughly 10%, the loss from the 2000 top to the 2011 trough to roughly 25%, and a holder who reinvested from 1929 was ahead in real terms by 1949.
For many reasons however, long waits result in typical holding periods and divdiend treatment that conspire to prevent attainmnet of textbook “dividends reinvested and compounding” assumptions. There is much involved in the calculation, which in a very practical sense depends on the life stage one is in.
Regardless, it has always been, one way or another, a very long wait rather than a wipeout for the patient holder through these three real bear markets. That wait, along with its meaning, is underappreciated these days.
Today, of course, “Stonks go UP!” is the mantra. Buy the Dip, or BTFD, another mantra.
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Probably one of the more common memes today too is some form of criticism of those that say the market is overvalued. In past articles I’ve demonstrated my opinion of earnings quality, unrecognized cyclical aspects, and other features of the market that suggest significant overvaluation.
Speculation has overrun investing, stock indices appear overstretched, and inflation is rearing its head again. If another 15-20 year period of negative or little real returns in stocks is in the offing, it would be good to know.
Let’s get started.
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