Yesterday the S&P 500 closed February at 735 marginally below its previous cycle low of 741. Not good. The next few days will tell the tale of whether this is a momentary blip that will now trigger a wave of long awaited buying pressure or the beginning of a fresh leg down for the S&P. Emotional responses and opinions here are useless, the price action will speak for itself. Meanwhile the Canadian market (TSX) finished at 8123 so far holding a few hundred points above its prior lows. If we could see the future we would know the date that this market crisis finally ends. It will end one of these days. Markets will eventually go back to gradually climbing a wall of worry. The art of surviving these times is to mentally prepare for various outcomes and be flexible. Lots of cash is key. Without liquidity and cash there can be no ability to capitalize opportunities when they present. And there are lots of opportunities in the offing.
In 2008 Warren Buffett's company posted its largest book value loss ever in its 44-year history at -9.6%. But even more relevant to his shareholders is that the market value of their shares fell 50% over the past year. I included the following chart to 2006 in my book in 2007; here is the updated history from Berkshire Hathaway's 2009 financial summary.
Buffett does not know when this market crisis will end either, but he has billions in cash and he has been buying equities over the past year.
The following chart from www.financialgraphart.com offers some big picture perspective on the bear of 2007-2009 relative to all the other bear markets since 1929. See How Far Have We Fallen? The depth of this market decline is already second only to the Great Crash of '29, but time wise we see that it has so far lasted less than the average. None of this tells us how much longer or deeper this bear go. But is still a useful perspective to see our experience in its historical context. We are living through a bad bear, but nothing about it is “unprecedented” or unpredictable. We very much look forward to the recovery.