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Ageing Bull

August 2018

“By [the fourth round], if there was anybody in [Madison Square] Garden who didn't know what was happening, he must have been dead drunk.”  Jake La Motta, aka “The Raging Bull”, World Champion boxer (1921-2017).


Tulipmania in 17th century Holland. A classic bubble and bust. Like any good story of excess it is replete with vivid tales of fortunes made and lost, greed, stupidity and intrigue. Few would argue with this truth.

Yet research by historian Anne Goldgar, based on the study of Dutch archives, tells a wholly different story (1). There was no bubble, losses were limited and many of the stories we hear and accept had their genesis in Calvinist propaganda and satirical writers of the time.

Incorrect beliefs are just as likely to be embedded in our present world view; we just don’t have the perspective of history to be able to discern them yet. This is hardly surprising.  We seek coherence in our perception of a messy world.  We are quick to assimilate points of view, especially those that seem neat and convenient, as unquestionable truths.

This is meaningful for us as investors because we must create a view and take decisions on that view.

The headlines over the summer made two things quite clear:

  1. We are well into the 9th year of a record-breaking bull market; and

  2. Investors should watch out because the age of this bull market means the end is near.


Both statements, which we think reasonably reflect mainstream or at least commonly-held beliefs, are suspect.  Unpacking them may offer some useful lessons for portfolio construction.

The 9 Year Bull is Bull

The first “fact”, that we are now into the 9th year of a bull market, is only true of one market: the US.  Bear markets are by convention defined as markets that have fallen more than 20% from their latest high.  By this definition, only the US among major markets has remained in a bull market since the 3rd March 2009 low:

US bull market.png

Fig. 1: US stock market has managed to avoid a fall of more than 20%

Every other major stock market index has experienced at least one and as many as three bear markets in the past 9 years:

ROW market.png

Fig. 2: Every non-US major stock index has had at least one “bear” market since 2009

If we treat all markets like an “ageing bull”, rather than just the US, we could be missing opportunities to own shares in markets which may be in the first couple of years of their own lengthy bull market.

Age is just a number

There is a more fundamental question to answer.  Is it even true to say that because a bull market is 9 years old, it must be close to its end?

To start with the most obvious issue, there is no consensus on exactly what defines bull (and bear) markets, and whether certain market phases count or not.  For instance, in the US, stocks fell 19.9% from July to October 1990. Most observers count this is a “bear” market even though it did not breach the conventional 20% threshold. Logically, they count the start of the next bull market from October 1990 – ending in March 2000.  But others stick rigidly to the 20% threshold, which would mean the bull that ended in the Dotcom boom and bust actually started in October 1987, right after the Wall Street crash, and lasted almost 13 years.

You can read plenty of excellent analysis on this question (2).  The problem is clear: if you can’t be sure if the bull is 5, 7, 9 or 13 years old, the age becomes meaningless.  And regardless of the precise definition used, it is not clear that ‘old age’ alone will determine when a bull market is due to end. Even if it did, a more compelling question is what to do with that information?

A recent interview (3) with four economists, “Cassandras” who correctly called the crash of 2007 to 2009, included a comment from one of them:

“I’d forgotten that I’d actually told one of my best friends to get her money in her [teachers’ pension] scheme out of shares and put them into bonds.  Apparently I just rang her up and harassed her.  Back in 2006 to 2007, I said ‘get your money out of anything exposed to the share market or the real estate market’.  And she told me that when her friends at the school she worked at were talking about the crunch when it actually hit, with the huge drop in the share market occurring in 2008, they all lost, like, 40%... 40% of their pensions disappeared, and she said ‘I’m fine… I gained a bit.’”

The presenter and other guests laughed.  Of course, had you known the crash was coming, the right thing to do was to get out of shares, or so it seems. But the presenter did not ask what seem to me obvious follow-ups:

a) did you phone your friend back when it was time to get back into stocks and shares or is she still out of stocks and shares?;  and

b) if she is still out, how does she feel about missing out on “the longest bull market” in history?

The 2007 – 2009 crash, in fact, might well offer the opposite lesson to what the economist saw.  If you could withstand the volatility it was far better to have stayed invested through the crisis, reinvesting income, not least because it saved you the enormous difficulty of knowing when to get back in.  We know of investors who came out at the first signs of trouble and are still waiting for the “next crash” a decade (and 200% to 300%) on and others who wavered but stayed the course and are substantially better off now, both financially and in terms of experience.

The bull market which preceded the crash, starting in March 2003 and ending with the start of the Financial Crisis in October 2007, was only 4 years old but still came to a juddering halt.  So was its age relevant or helpful in driving the right long-term investment behaviour?  It neither gave much clue to the crisis to follow, nor necessarily an obvious course of action.


Lessons for portfolio construction

There are layers of assumptions we make when we overlay a model on markets (such as the issue of the age of a bull market).  Each can divert our course if wrong; in aggregate they can push us far off target.  Many will be rooted in incorrect beliefs or an acceptance of an incomplete explanation of the market environment, which itself is constantly evolving.

This is why in the investment sphere it is easier and more useful to look for what can send us off track than what will deliver outsize returns. As I have written before, (in our December 2017 article, “avoiding extreme emotional pain can be critical to sticking with your financial plan”. Figuring this out requires a level of examination of one’s own decisions that is cognitively and emotionally uncomfortable, not to mention hard work, so most avoid it (4). For those that do the work they have the chance to gain a powerful advantage.


  1. Review of Anne Goldgar’s book in The Smithsonian magazine:

  2. Excellent piece on why the current US bull market is definitely not the longest on record and an exploration of what constitutes a true bull or bear market by John Authers in the FT:

  3. “Cassandras of the Crash” presented by Aditya Chokraborty on BBC Radio 4:

  4. “Getting Better by Being Wrong: My Conversation with Poker Pro Annie Duke”, The Knowledge Project podcast episode 37. Almost two hours but worth listening as it explores this topic in gratifying detail:

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