We are in one of the deepest bear markets in history. It’s certainly an anxiety-provoking time for all of us. Retirement plans are getting delayed, people are rethinking their expenditures and we are all wondering what it will take for the market to start recovering from its swoon.

One of the things that I find most rankling about this bear market is the constant use of the word “unprecedented”. I’m prepared to accept one of two explanations for its repeated use by market pundits. The first explanation I would find plausible is that the writers are unfamiliar with the definition of “unprecedented”. I understand unprecedented to mean “never happened before”.

The second explanation for the repeated use of “unprecedented” might be that the writers for the various financial publications are all very young. If you are young enough you might be able to say this is “unprecedented” in your lifetime.

The facts are that the current situation is far from unique. It is a deeper bear market than most, but it is not that much different from the 13 other bear markets we have had since the end of the Second World War. There are, of course, aspects that are different. Every bear market requires enough uncertainty to create a belief that it could be the end. 

In 1946, the S&P 500 reached the dizzying height of 19 points before starting a plunge that marked the first bear market of the post war era. The current level of the S&P 500 is, at the moment I write this article, 878 points.

There is no question that the current bear market is a big one and comes fully equipped with all kinds of devastation, particularly for leveraged portfolios or those that are not broadly diversified. To find an equal to this bear market, we need to head all the way back to 1972.

On Oct. 2, 1972 the S&P 500 index was at 118.05. (I’m using this date out of some weird convenience since I’m picking the absolute peak of the market back then. I’m sure some unfortunate soul stuck their money in on that day). Two years later, the S&P 500, on July 1, 1974, stood at 63.54. This is a 46% decline, not including dividends paid out.

The bear market of 1972 is certainly worthy of being a precedent to what we are going through today. A determined bear might say that we have never had a bear market and a banking crisis at the same time, but I’m afraid that’s not true either. According to the International Monetary Fund (IMF), governments around the world have bailed out banks over 120 times over the last 25 years. The trillion dollars that the U.S. is spending right now is certainly a big number, but it pales in comparison to the $4 trillion that burned during the tech meltdown.

The 20 years that followed the peak of 1972 saw the S&P 500 rise to 435 points. A four-fold increase from the peak before the bear started in 1972 and an almost seven-fold increase from the trough reached in 1974.

It is impossible to minimize the genuine anguish this market is causing investors. The question now, however, is not what should have been done in the past. The question today for investors is whether or not they should sell.

The answer to sell question depends on whether you think this time it is different. If you think that this time is “unprecedented’ then there is every reason to sell. We are heading into some unknown future where history is no longer a reasonable guide. If you believe, as I do, that this is one more bear market that will end like all the others, then recovery ceases to be a question “if,” and only a question of “when.”

Alan MacDonald is an investment adviser who helps high-tech entrepreneurs make smart decisions about money. Contact Alan at Alan.Macdonald@RichardsonGMP.com or through www.alanmacdonald.ca.

Richardson Partners Financial is a member of CIPF.