Executive Summary:
o Bull markets trump bear markets
o Attempting to time the market will be detrimental to your performance
o “There are only two types of people when it comes to market timing: (1) People who cannot do it, and (2)
People who have not realized that they cannot do it”. Terry Smith
o Time in the market is superior to timing the market
o “The stock market is a device for transferring money from the impatient to the patient”. Warren Buffet

At the end of June 2022, the Nasdaq and S&P 500 indices have lost 31.2% and 23.4% from their highs in December
2021. These figures represent proper bear market territory. With all the negative sentiment surrounding the current
investment environment, I thought it would be prudent to take the opportunity to revisit two well-known and
universally known truths about investing. Let’s explore how they impact your portfolio’s performance.

Bull markets trump bear markets
A bull market can be defined as a gain of more than 20% in share prices. One enters a bear market generally when
there is a drop of 20% or more in share prices. According to Seeking Alpha, the S&P 500 Index has seen 26 bear
markets, and 27 bull markets since 1928. One may argue that they are basically equal in number, but it is important
to highlight that bull markets tend to last much longer than bear markets. It is a fact that during bull markets capital
growth is much stronger than the drawdown which occurs during a bear market. This is a fact and can be
substantiated by hard data and numbers. When one considers the below slide of the last four bear markets
(excluding the current) and the subsequent recovery, it becomes apparent that the recoveries on average last much
longer.

The following graph contains even more detailed information about bear markets, the drawdown percentage per
period, the recovery time and subsequent one, two-, three-, five- and ten-year returns.

A long-term investor thus shouldn’t really be concerned about being in a bull or bear market. The lows of bear
markets are ironed out by bull markets and the general long-term trend is upwards. Volatility in a long-term
portfolio is often stressful, and investors may often find it difficult to stomach the deep troughs in the market cycle.

Attempting to time the market will be detrimental to your performance
When it comes to market timing the following saying by Terry Smith comes to mind: “There are only two types of
people when it comes to market timing: (1) People who cannot do it, and (2) People who have not realized that they
cannot do it”. Market timing is extremely difficult since it requires the investor to get two important decisions both
right. Firstly, the investor must exit the market at a high, and secondly must re-enter at the bottom. The reality is
often quite the opposite because when markets fall, a natural response can be to sell the shares and re-entry is
only when markets are at a high. The data below which goes back to 1930 found that investors who missed the 10
best days each decade by applying market timing would have received a total return of 28%. Investors who remain
invested would have received a return of 17 715%.

Conclusion
We as investors are human, and humans experience emotions. The euphoria experienced during times of prosperity
in bull markets can very easily be overshadowed by the fear and anxiety when market conditions deteriorate and
take a turn for the worse. In times like these, investors should focus on things that can be controlled and try and
ignore those that cannot be controlled. Examples of what can be controlled are amongst others emotions, time
horizon, patience, risk tolerance and staying invested. Things that cannot be controlled include inflation,
geopolitical events, the industry commentary/noise as well as market movements. By focusing on what can be
controlled, ignoring what can’t and sticking to the investment strategy without deviation investors will be able to
achieve the ultimate goal: superior wealth creation. One should never forget the wisdom of Warren Buffett when
it comes to investing in the stock market. One of his most famous sayings is: “The stock market is a device for
transferring money from the impatient to the patient”