Lets take a close look at the last secular bear market to see what we can learn.  The last secular bear market lasted 16 years, starting in 1966 when the Dow traded at 969 on a p/e of 23 (the era of the Nifty Fifty – growth stocks thought to be so promising that is was worth paying any p/e to own them).  It ended in August 1982 with the Dow at 770 on a p/e of 8.

Price swings of the Dow between 1973 and 1982 reveal that investing was anything but a waste of time during this period after the actual price low in the index and up until the next secular bull market commenced.

This can be seen by following the broad swings of the Dow during these 8 years.  The price action of the Dow can be summarised as :

From a high of 1,067 in Jan 1973, the Dow fell to a low of 573 during Oct 1974,

Rally to 692 in Nov 1974 and down to a final (secondary) low of 570 during Dec 1974 – just 3 points below the October low.

Rally to touch 1,000 in Feb 1976 (at this point the Dow had essentially halved and then doubled back to where it started, all in the space of 13 months.  No-one could be certain whether they were in a new bull market or still in a bear market at this time).

Spent the rest of 1976 trying (but failing) to break decisively through 1,000; closing at 999 in Dec 1976 after a high of 1,026 in Sep and a low of 918 in Nov 1976.

Down throughout 1977 to a low of 736 in Mar 1978 (which was a 61.8% Fibonacci retrace of the 570 to 1026 rally). 

Rally to 917 in Sep 1978 (retest of the Nov 1976 low), then back down in two months to 779 in Nov 1978.

Spent the whole of 1979 trading in a range between 800 and 900  (6th Oct 1979 was Paul Volcker’s Saturday Night Special where he raised the discount rate from 11% to 12% and said that interest rates would be raised to “stratospheric levels” in order to squeeze out inflation).

Rallied to a high of 918 in Feb 1980 (double top with the Sep 1978 high).

Fell 20% in less than two months to a low of 730 during Mar 1980 (just 6 points below the Mar 1978 low).

Then rallied 38% during the rest of 1980 to reach a high of 1,009 in Nov 1980.

Back down the following month to 895 in Dec 1980 then rallied to 1,031 in Apr 1981 but fell to 807 in Sep 1981.

Rallied to 899 in Dec 1981 and then fell to 786 in Mar 1982 with a secondary low of 784 in June 1982.

So there is plenty of money to be made as share prices rally, fall back, range-trade and derate all at the same time.  Even if you don’t have access to a charting package, you can get a real feel for these price swings by simply hand-drawing them on graph paper.  The exercise would not take very long and it will be very rewarding as it will generate confidence in the discipline of regularly banking profits and subsequently buying back into the market even as we trace out the rest of this secular bear market, which has been in place since Dec 1999 in the case of the FTSE.

From a practical investor’s perspective it pays to follow your favourite large cap stocks and be disciplined about taking profits on part of your portfolio when the indices near resistance and be equally brave to buy back into the market at support levels.  The history from the 1973-1982 period teaches us that horizontal support & resistance levels are important in derating markets which have historically shown a tendency to range-trade.  It is important to keep your portfolio sectorally diversified because in order for the index to attain a high, the rally must be led by at least one sector with several other sectors participating in the rally too.  Hopefully your particular shares will be keeping up with their sectors and you will have a choice of profits to take when the index reaches an important resistance level.  Similarly with buying back in after the index declines to a support level.  Good luck with the rest of this secular bear market.