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OK, you knew that. There's a lot of talk going 'round about the pace of modern life and the cost of our sometimes frenetic lifestyle. What we save in time we pay for in stress. But I'm not convinced that we don't end up ahead. Surely the stress of being a working parent (and believe me, I am well acquainted with that particular modern demon) is no worse than the stress of being a frontier parent responsible for raising the very food that kept your children alive, or the stress of being a factory worker early in the industrial revolution.
We like to talk about the stress of modern times, but I suspect that, as a whole, our stresses are less than those of the past. Sure, we conjure up idealized and sanitized images of slower-paced lives back when there were no phones to interrupt our meals or eight-lane freeways to navigate, but I would bet that if we could actually visit a bucolic country village of 200 years ago, we would find a whole lot more death, disease, oppression, anxiety, economic injustice, and sheer terror than we ever imagined. Stress stinks, but I don't think it's new.
I would even say that, as a species, we have always arranged our lives with as much stress as we can tolerate. It's less boring, and overall, more productive. In fact, I'm going to go out on a limb and assert that the average human being experiences less stress today than at most times in the past.
(Note -- that doesn't mean that there are not far more human beings living in terrible conditions now than in the past, but that's because there are far more human beings alive today. And it doesn't mean that for many people life isn't absolutely horrific. It just means that for most people, life has been pretty horrific in the past, too. Those of us for whom life is merely stressful need to keep that in mind and try to do something about it.)
What does this have to do with investing? I'm getting to that.
First, I want to postulate that while the pace of life is accelerating -- which, yes, causes a lot of stress -- that acceleration may actually be a very good thing when it comes to making life better and when it comes to investing. After the Wednesday-Thursday rally, I started thinking about the speed factor when it comes to market movements.
OK, here's a theory -- not a prediction. Maybe theory is too strong -- let's call it a speculation. Maybe, just maybe, we've accelerated ourselves right out of the bear market cycle, at least as it is currently defined.
What seems to be happening is that normal ups and downs of the market happen faster. Maybe investors have learned that bear markets are buying opportunities and that knowledge is dampening the market's swings. The market drops and after a few days or months some people start to think, well, the world didn't end, maybe it's time to get back in. So the market starts back up and others see it rising and think, OK, better jump back in before I get left behind, and off it goes. In a very simplistic way, that is how bear markets work. They are all about investor confidence. In the past, this scenario has usually played out over a year or two, but the last two bear markets have been much shorter than usual.
I found a nifty chart (man, this Web-thing is great) that seems to illustrate this process. Take a look at this one: Defined Bear Markets, 20th Century. The chart shows 30 bear markets for the 20th century (although we have a few months left yet -- the chart starts with 1901). I did a quick survey of the start dates and found that every single decade had three or more bear markets. (The first bear market of the '40s started in 1939.)
Except this decade.
How many bear markets have we had in the last 10 years? Not a one, by the definitions used in this chart. The last bear market was in 1990 (technically the last year of the '80s -- remember the chart starts with 1901).
What's more, the last two bear markets, 1987 and 1990, were practically over before they got started. The bear market of 1987 lasted all of 55 days, and the bear market of 1991 was over in less than three months. Remember the great almost-bear market of 1997? The panic caused by the great Asian currency crisis didn't make the list.
There was a similar drop in 1998 caused by more currency crises. One thing that I remember from the 1998 drop was the idea that the small investor had stabilized the market. Pundits said that the sell-off was led by institutional investors (mutual funds and the like), but individual investors held on and kept the panic from getting out of control. Remember that? I'll bet that a lot of fund managers do. No one likes to think of himself as the guy who panicked.
There are a tremendous number of factors that have contributed to the amazing market growth of the last 10 years, including technology, productivity, globalization, the budget surplus, demographics, etc., etc. I'm sure each of them has played a role, but here's my contribution. I think that the accelerated pace of change is actually training investors to think long term.
We are getting used to things happening fast, so when the market falls we expect it to recover quickly and continue on its long-term way -- which is up. That expectation leads to investors buying up stocks that are "on sale," which keeps prices from falling disastrously, and pretty soon the market is back on course. We've had a correction, but not a calamity. The process has been compressed.
Of course, this could just be another way to describe "irrational exuberance." Maybe what is really happening is that the bubble is growing bigger and bigger, the pressure is building and building, and one day it will all explode in the mother of all bear markets, another global depression. OK, maybe. But with all those other factors -- technology, productivity, globalization, etc. -- still supporting the market, I really think it will take something far more significant than some over-priced Internet stocks to bring the whole market down and keep it down.
Knock on wood.
Fool on and prosper!