What today's investors can learn from the bear markets of the past

Several key patterns emerge from a look at previous downturns, says Max King. The upshot is that fortune favours the brave – but don’t panic if you miss the initial rebound.

Model in 1960s London
Stocks were cheap in the 1970s, but investors couldn’t see it
(Image credit: © United Archives GmbH / Alamy)

The dramatic recovery of markets in the spring and a second wind in November took many investors by surprise. Having fallen by 35% since mid-January, the FTSE 100 started bouncing back on 23 March, just as the first lockdown was announced and with the UK’s death toll from the pandemic barely more than 300. Having risen by 30%, the index then peaked in early June, shortly before the lockdown was first relaxed. By late October, with the economy recovering strongly, it had dropped by 14% but then rallied by 15% in a fortnight.

It seems that markets panicked prematurely, recovered when the news was getting worse, then slid as it improved. November seems easier to explain; the gridlocked outcome of the US election, likely to endure for at least four years, was a positive surprise and the first vaccine announcement on 9 November promised an early end to the pandemic. But positive vaccine news in November from several directions had been well-flagged, so why was it a surprise? The pundits are bemused, warning that the recovery has gone too far, too fast, especially in the US, where the S&P 500 has been hitting new all-time highs since the summer. The history of market rebounds, however, tells us that before long they will be chastising investors for not piling in when they had the chance.

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Max King
Investment Writer

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.

After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.