It was a heck of a long wait, but this week it finally came to an end. Helped along by the latest temporary fix to the Greek crisis, the FTSE 100 crawled its way past the 6,930 it closed at on 31 December 1999, its all-time closing high. Break open the champagne and unfurl the banners. The 15-year bear market is finally over.
Well, partially anyway. Numerically, that might be true, but the psychological damage is likely to stick around for a lot longer. No one who follows the markets will need reminding that 2000-2015 will go down as one of the epic bear markets of financial history. The average bear market lasts about five years.
Yes, there have been worse losing streaks in the past. If you'd been unlucky enough to buy the Dow Jones index at its peak in October 1929, then you would have had to wait until November 1954 to be back in the money.
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If you'd invested in Japanese stocks at their peak in 1989, you'd still be out of pocket and given the Nikkei index is still a long way from its all-time high, there could easily be another couple of decades to go before you break even on that bet. Still, those are outliers. By any normal standards, this has been a very long bear market.
Is it really all over?
Of course, whether it is actually over is open to question. With a wobble in China, or another round of the never-ending Greek crisis, there could easily be another crash before the summer.Stocks look overvalued on many measures and it may well only be the miserable returns on cash or bonds that are keeping them up at these levels. If the FTSE drops a thousand points in the next month, we may not regard the bear market as having really ended after all.
But assuming nothing terrible happens, and the FTSE climbs to 8,000 over the next year, and then 10,000 over the next three, which is the kind of progression you would expect for a bull run, the legacy of those 15 years will still be around for a long time. Why? Because it will have changed the psychology of investors if not permanently, then for a very long time to come.
The bear market following the crash has changed us
Consider older investors first. True, it's relatively unlikely that many people piled into the market on the last day of the last century, right at the very top of the market. They probably bought some shares before that, and more in the years afterwards, when prices were lower. So the chances are they have not suffered zero returns over the entire 15-year period.
They have probably made something, and collected some dividends along the way. Even so, if they check the performance of their portfolio or their pension fund every few months, they will probably have been generally disappointed with how it has done.
Most baby boomers grew up with the idea that stocks were the best long-term investment, and have been told that repeatedly by experts. That faith will have been severely tested over the last decade and a half. At best, they probably now view equities as the least bad of the various alternatives. It will be a long time before they see them as an easy way to make money again, or view them with much enthusiasm.
Meanwhile, Generation X and the Millennials, who mostly started saving and investing after the crash of 2000, will probably have an even more negative view of the stockmarket. After all, they will have grown up with a stockmarket that doesn't consistently rise in value and where they lost money as often as they made it.
There is plenty of academic evidence to suggest that whatever is happening to the market in your 20s shapes your view for the rest of your life. If it is roaring upwards, and everyone is making a fortune, you assume it is always a bull market.
If it is depressed, you tend to view equities as a sure way to lose money. Assuming that is right, those in their 20s and 30s are likely to remain suspicious of the market for a long time to come.
Psychological lag
That will have consequences. If the FTSE pushes on to 7,000 and then 8,000, you normally expect a euphoric bubble to get going.You would see some huge flotations, probably on stratospheric valuations, some huge merger and acquisition deals, and a flood of money pouring into the market.
Popular capitalism would be making a comeback, and TV executives would be commissioning as many shows on investing as they do on cookery. That was what happened in the 1980s and 1990s.
But that is not going to happen this time around. Even if returns are quite respectable, most people will still find it hard to believe. An upsurge of enthusiasm will come eventually, of course. But it will take another five years at least, and the FTSE will probably be touching 11,000 or 12,000 before stockmarkets become popular again.
Until then, most people will be nervously expecting another crash every time they wobble. The bear market itself might have formally ended this month. But a mindset that a decade and a half of losses gave us will stick with us for a lot longer.
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