Rafiki's Wisdom

November 09, 2022

“The past can hurt. But the way I see it, you can either run from it or learn from it.” The enduring words of Rafiki, the eccentric baboon, spoken after walloping Simba on the head with his staff. Sound advice for the lion king seeking his rightful place on the throne. Sound advice for investors as well…

News about the stock market has been abundant this year. This is always the case during a bear market, when the talking heads know they can pump ad revenue by preaching fear and doom. I’ve written extensively this year why there is no reason to fear if you have a well-diversified portfolio. This too shall pass.

Below is a chart with data compiled from Yardeni Research of all bear markets since the ‘60s.[i] That is, since most of you reading this have been alive. Note the red column – that’s the percentage loss the S&P 500 index suffered. Then note the green column – that’s the percent gain from the trough of the bear market (the moment of maximum pain) to the S&P’s close on the last day of 2021:


Obligatory disclaimer to keep my compliance department happy – you cannot invest directly in the S&P 500 index, and an individual investor’s performance would differ from the above data given trading costs, expenses, etc. I use the S&P 500 index here as a benchmark for the stock market writ large, as is customary.

Back to the eponymous baboon. The past can hurt. It’s one thing to experience the pain of the 48.2% decline in 1973 and decide to get out of the market. Sell out of your portfolio and go to cash. But much more painful is hindsight’s whisper that you’ve forfeited 7,553% returns…

You know what sounds great to me? Those quadruple digit green numbers. Of course, when you’re experiencing the red number, you can’t know what the green number will end up being decades down the road. That’s the whole point. I’m sure those staring down a 28% loss in their portfolio in the early 60s weren’t thinking it’s all up 9,000% from here, baby!

But everyone who looks at that chart thinks the same thing. Imagine how great it would be to have bought during those bear markets all those years ago… Most people didn’t invest in the middle of those bear markets. The period of maximum pain. They felt like you feel today. It’s too volatile. The news is too bad. This time is different…

There is one lesson history teaches us in the stock market: lower lows now = greater returns in the future. There are a few caveats here. The first is that you must remain invested. Those who panic out of their portfolios during temporary downturns forever forfeit their long-term returns. Second, this is only true for diversified portfolios. There’s no telling what the long-term future holds for any given individual stock. Bear markets are nothing more than golden buying opportunities for the well-diversified equity investor.

So there were nine bear markets (defined as a 20+% downturn from a recent high) between 1961 – 2020. That’s an average of one every 6.5 years. The chart admittedly suffers from some recency bias. If you consider the entire history of the stock market, you’ll find we average a bear market one every 3.5 years.[ii] Though that 3.5 number is a bit skewed by the experience of the Great Depression, in which we experienced nine different bear markets in the 11 years from 1929 – 1940.[iii] Let’s split the difference and settle on five. I think it’s fair to say we ought to experience roughly one bear market every five years.

How many five-year periods do you have left?

Apparently, life expectancy in the United States is 77 years.[iv] But that number changes drastically once you control for a few variables – smoking habits, diabetes, weight, income, etc. Let’s assume you’re going to make it to 95. I know many people that have made it that far. I hope you’re one of them.

If you’re 40, you have 11 bear markets ahead of you. Better get used to it. If you’re 30, you have 13. Say you retire this year at 65 – still six bear markets left in the tank. I won’t spell out the rest. You can do the math.

I don’t know when those bear markets will occur. Or how long they’ll last. Or the reason for their occurrence. Or the depth of the decline. I just know you’re going to experience a handful of them. Probably about one every five years. I think you should keep track. Use the chart below:

It’s similar to the previous chart but with two crucial differences. The first is it’s empty. I can’t predict the future. You ought to fill it in as you go. You’ll probably knock out one row about every five years. The second is the right-hand column. That’s the most important part. How did you respond? Make the decision now, before you’re in the emotional throes of the next bear market. When that next bear rears its ugly head, what will you be doing? 

I know what I’ll be doing. I bet you can guess.

Maybe sixty years from now you, or those who you bless with an inheritance, can look back at that chart and see your record during bear markets. Even better, there will be a corresponding dollar amount in an investment account. Perhaps the result of 9,000% total returns. It’s happened before….

The past can hurt.

You can either run from it or learn from it.

Hakuna Matata,

Sean Cawley, CFP®


Neither asset allocation nor diversification guarantee against investment loss. All investments and investment strategies involve risk, including loss of principal.

Content here is for illustrative and educational purposes only. It is not legal, tax, or individualized financial advice; nor is it a recommendation to buy, sell, or hold any specific security, or engage in any specific trading strategy. Results will vary. Past performance is no indication of future results or success. Market conditions change continuously.

This commentary reflects the personal opinions, viewpoints, and analyses of Resolute Wealth Management. It does not necessarily represent those of RFG Advisory, clients, or employees. This commentary should be regarded as a description of advisory services provided by Resolute Wealth Management or RFG Advisory, or performance returns of any client. The views reflected in the commentary are subject to change at any time without notice.

[i] “Stock Market Historical Tables: Bull & Bear Markets.” Yardeni Research, Inc. August 15, 2022. Pg. 4.

[ii] 10 Things You Should Know About Bear Markets. Hartford Funds. https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/bear-markets.html

[iii] “Stock Market Historical Tables: Bull & Bear Markets.” Yardeni Research, Inc. August 15, 2022. Pg. 4.