EDMOND — Are you a bull or a bear? I’ve heard this question countless times during the years. The truth is the answer doesn’t matter. What does matter is an understanding of the up and down cycles of the market and where we are in that cycle.

In a firm I worked at years ago, many of the brokers had pictures or statues of bulls on their desks, but no bears. I used to take away their bulls and refuse to return them unless they promised to display the bear also. I did this to make a point — there are two sides to every market. If you ever meet a money manager/broker/

financial adviser who only has bulls displayed, run — don’t walk — to the nearest exit. Why? Because it reveals a fundamental lack of market understanding. Markets go up and down; the bull and the bear each have their day.

Most people know that a bull market is one that is trending up. A bear market is one that is trending down. But then you hear about secular and cyclical bull and bear markets and your head starts spinning. Say what? Let’s try to sort it out.

Secular, in this context, means long-term. A secular bull market is a long-term market uptrend such as took place from 1982 to 2000. However, this long-term uptrend was periodically interrupted by cyclical bear markets such as the 1987 market crash and the 1990 bear market. They were devastating at the time, but turned out to be only temporary interruptions of the long-term uptrend. Even though the market was in an 18-year uptrend, there were a few shorter-term corrections, or downtrends, along the way. A cyclical move is a move of one to three years duration within a long-term secular trend of up to 20 years.

On the other hand, a secular bear market is a long-term sideways or downtrend, such as took place between 1965 and 1982. Although the long-term trend is sideways to down, it is periodically interrupted by short-term cyclical bull markets, sometimes called a bear market rally. They are great to participate in but are only temporary interruptions of the long-term down trend. Everyone gets excited because they think the worst is over, only to be suckered back into the market to get hammered again. The gains in each cyclical bull market within a secular bear are lost in the next move down.

I think we are certainly in a secular (long-term) bear market that started in 2000. The good news is that once it ends, we probably will see the markets hit unbelievable new highs in the following 17 or so years of the next secular bull market. The bad news is that the current secular bear market that we are experiencing probably has at least another six to seven years to go.

Some would argue that the current secular bear market started in 2007, which means it has another 13 to 14 years to go. This means that we will see more of the painful up and down volatility of a couple more cyclical bull and bear markets within that time frame, going nowhere at best and probably much lower before it is finished. For “buy and hold” investors, this is the equivalent of “death by a thousand cuts.”

When we have the benefit of history and charts, we can clearly see when past secular bull and bear markets have occurred. The past 110 years were clearly divided into three secular bull markets and three secular bear markets.  We are currently in the fourth secular bear market, which began in 2000. Or so it seems. History is easy to see; the future is not always as clear.

Secular bull markets are long periods when buy and hold investing works, even if interrupted by nerve-wracking declines in the periodic cyclical bear markets. On the other hand, secular bear markets are terrible times for buy and hold investing. That is why traditional asset allocation has not been working for investors. Not only does the market go nowhere for up to 20 years in spite of sizable periodic cyclical bull markets, there are numerous severe declines (cyclical bear markets) to contend with that plunge the market as much as 50 percent each time.

We had three completed secular bear markets in the past 110 years: 1906 to 1921, 1929 to 1954 and 1966 to 1982. While the secular bear market that began with the 1929 crash was a more severe and dramatic secular bear, it was quite different. It was accompanied by the Great Depression, and the Dow did not get back to its 1929 level for 25 years. I believe the current bear market will more closely resemble those of 1906 to 1921 and 1966 to 1982. Because of that, and many other reasons, I think the market is due for a significant fall beginning sometime in the next six months.

Now that you know the difference, the next time you’re out with friends you can casually mention that we are about to complete a cyclical bull market within a secular bear and are about to start a cyclical bear. They’ll be quite impressed — or bored. Thanks for reading.



NICK MASSEY is a financial adviser and owner of Householder Group Financial Advisors in Edmond. Massey can be reached at www.nickmassey.com.  Securities offered through Securities Service Network Inc., member FINRA/SIPC.