Barry Ritholtz on Bulls and Bears

Understanding how old a bull market is may very likely affect your expectations of future returns as well as your investment allocations and risk appetite, writes Bloomberg columnist Barry Ritholtz.

With regard to what many are calling an eight-year-old bull market, Ritholtz argues, “Rather than saying that the bull market is celebrating its eighth birthday, what we really are observing is the eighth anniversary of bear-market lows.”

The difference is in the details, says the head of Ritholtz Wealth Management. He explains his view that a bull market begins when “indexes surpass earlier highs,” not simply when it rises from a “bear-market bottom.” If investors use the inversion point to mark when a bull market begins, Ritholtz argues, historical bull markets would in fact have been much longer-in-the-tooth than currently believed. He uses the example of 1982, when the Dow Jones Industrial Average eclipsed 1,000 on a permanent basis, as the beginning of “that epic 18-year bull market.” However, he argues, if we look if we look at it from the inversion standpoint, it would actually have been 26 years old (starting at the 1974 bear-market bottom). “If you speak to people who were working on Wall Street in the 1970s,” he writes, “none of them will tell you that period felt like a bull market—because it wasn’t.”

Ritholtz asserts that 2013 was really the beginning of this bull market since the market experienced “a breakout to new highs,” which would make the current bull market four years old. “There is a big difference,” he writes, “between cyclical bull markets, bear market rallies and corrections within a secular bull market. Understanding this can make all the difference in the world.”