Confusing Market Crashes & Bear Markets. (Part-1)

Over the long term, confusing market crashes and bear markets can be detrimental to investor outcomes. Yet, this is what Morningstar did recently in discussing the market correction in 2020. To wit:

“The market downturn caused by the COVID-19 pandemic was one of the most severe in recent history, but it also proved to be one of the fastest recoveries. This episode reinforces two important lessons for long-term investors:

  1. Don’t panic and sell stocks when the market crashes.
  2. It’s very hard to predict how long the stock market recovery will take.”

Confusing Market Crashes Bear, #MacroView: Confusing Market Crashes & Bear Markets. (Part-1)

During the downturn, I made these points in an article about the history of market crashes. I showed that the 150-year record of U.S. market returns is littered with bear markets (downturns of 20% or more)—and in each case, the market eventually recovered and then went on to new heights.”

Not A Bear Market

The problem with the analysis is that March was a “correction” and not a “bear market.”

Let me start with an insightful note from Sentiment Trader: