Mark Hulbert is looking at bear markets in the past as a proxy for the future. He is essentially saying that bear markets usually don’t last very long. “You only have to feel the pain for a short time.”
Now, let's suppose we are in the onset of a bear market. He says "on average" a bear market is short. Simple statistics, like looking only at the average, can fool you! Be careful. Have you ever heard of a “Black Swan”? Black swans occur more than you think. That is why even standard deviation does not provide a complete picture. To name just a few other important factors to look at, there is skewness and kurtosis. And, you better be looking at a graphic depiction of the data. What if the graph shows multiple peaks/valleys?
There are a lot more factors to consider in the analysis. A study of history shows that there are bear markets that are significantly longer than the average too (skewness). What if that occurs? Are you prepared to hunker down for 5 to 10 years? Did you buy a large portion of your holdings at the top of the bull? You could have a long time to wait just to get back to even. Do you have dividend paying stocks that can sustain you during an extended bear? Now is the time to consider those items.
Statistics are often seen as a concrete answer. This is the result of the mathematics involved in statistics. Mathematics breeds confidence. The better way to look at statistics is to view the subject as a way of thinking about possible future outcomes. Don't expect guarantees; expect shades of gray.
I agree that the length of the bull market has no correlation with the length of a bear market that follows. The past is not a proxy for the future in the case of bull/bear markets. The safest position is to be prepared for the "long haul". Maybe the bear lasts a year, but what if it lasts three, five or eight years? The point is that you had better be ready to hunker down for an extended period of time.
If you need to sell while a bear market is still in effect, you could feel significant financial pain. Few people think about this possibility while the bull is charging ahead. When the crowd is all fired up, in any life situation, few want to hear the words of reason.
As a bear market gets longer and longer, the cocksure confidence of the once sure crowd begins to erode. Slowly, more and more people capitulate and "throw in the towel". Make sure you are able to stay the course over the long haul or the ultimate results will not be pretty!
