What does history tell us?
We don’t know when the current bear market will end, but we do know that it will end. When it does, the stock market will recover, so the question then becomes, how fast and to what levels?
While the speed of a recovery can’t be known, stock market history teaches us that the old peaks in prices will be matched and exceeded at some point. The chart below shows the path of the S&P 500 from its peak in October of 2007 to March 2012 when the index regained its previous high.
You will notice that the blue line, representing Dock Street’s Core Equity portfolio, recovered to its previous high over 18 months before the S&P 500 did the same.
Below is another case, the nasty 4th quarter of 2018. The market fell nearly 20% into Christmas Eve that year and recovered strongly in 2019.
Again, the Dock Street stock portfolio recovered more strongly than the index.
Will something similar happen again? There are no guarantees in this business, but in most corrections and bear markets since Dock Street’s founding in 1989, when investors worked up the courage to start buying stocks again, they have often bought high quality companies first.
As we pointed out earlier this year, in every bear market there is a chunk of the stock market that suffers permanent value destruction. Many of the IPO’s (newly traded stocks) launched in the last couple of years are down anywhere between 80% and 90%. Those stocks will not lead the market when the recovery begins.
Companies that remained profitable through the economic uncertainty that triggered the bear market are the leaders when recovery arrives. Those are the companies that Dock Street clients own.
Daniel A. Ogden
Dock Street Equity Core – The performance of the primary equity holdings of a typical Dock Street client inclusive of dividends and net of fees. Actual performance achieved was higher or lower for each client. Performance figures of the typical total portfolio are available on request.
S&P 500 – The performance of the S&P 500 index inclusive of dividends. Fees are not included so this performance is not available to the typical investor.