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A Different Kind of Bear

Published on March 19, 2023
The last couple of years have been very unusual. 2020 was one of the most volatile markets in recent history but the S&P 500 Price Index finished with a positive return roughly double its annual average. 2022 was just the opposite. While there was little evidence of investor panic typical of Bear Markets, stocks significantly declined in value with the S&P 500 finishing the year down 19.4%.


Source: Dow Jones Indices LLC

The chart above shows ranges of volatility, as measured by the maximum high to low intra-year index return and maximum low to high return ranges, along with the year-end annual return for the last 61 years. The table highlights the best and worst years for returns, the wildest (largest range), and calmest (smallest range) years for volatility along with the average year over this period and finally 2022. 2020 was the wildest year with a range of 103.7%, but interestingly ended with a return of 16.3%. 2022 had a nearly average range of 37.5%, but the fourth-worst return since 1962, trailing only 2008, 1974, and 2002. All three of those years occurred during Bear Markets and featured highly elevated volatility.

Anticipating annual volatility and returns is always difficult and even more challenging given recent extreme conditions. The key to long-term success is to stay invested because the likelihood for a positive investment outcome increases as time passes. Needs based planning and a disciplined investment process are valuable tools to achieve this. By separating long-term investments from short-term liquidity needs, investors can feel confident their needs will be met while giving growth-oriented investments the longer time periods necessary to reach their goals. As recent years have proved, wild markets don’t always lead to bad investment outcomes, nor do calm markets always lead to good investment outcomes.

From the Behavioral Viewpoint

What is Going On?

  1. The Illusion of Control leads us to overestimate our abilities to determine when to exit and enter markets. We also underestimate the true randomness and impact of world and market events. We have strong emotional urges to jump in or out or to stay on the sidelines.

  2. Salience Bias – We tend to focus on things that are emotionally striking even though more mundane events may have a greater impact. With the ongoing fanfare surrounding the Federal Reserve and changes in interest rates, we may be missing other more important factors that haven’t yet caught our attention.

  3. Recency Bias – We place more importance on recent events than historical events. In this case, the most recent large equity decline that occurred in 2020 quickly rebounded, so we may have concluded that 2022 would follow a similar pattern.

What can we do?

  1. Use needs-based planning to separate short and long-term investments. This can insulate your emotions from short-term market events while allowing long-term investments the time they need to mature.

  2. Build a strategy-diverse portfolio that can be resilient in a variety of market conditions and is designed for the long-run. Have a disciplined, data-driven, and rules-based investment process to drive out emotional decisions.

  3. An experienced financial advisor, who has lived through many market environments, can provide valuable perspective and coaching that can help you stick to the plan and stay focused on long-term goals.

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Behavioral Viewpoints feature new topics each month which are intended to help advisors and investors gain a deeper understanding of how behavior shapes the investing landscape.


The information provided here is for general informational purposes only and should not be considered an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  It should not be assumed that recommendations of AthenaInvest made herein or in the future will be profitable or will equal the past performance records of any AthenaInvest investment strategy or product.  There can be no assurance that future recommendations will achieve comparable results.  The author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.  AthenaInvest disclaims any responsibility to update such views.  These views may not be relied upon as investment advice or as an indication of trading intent on behalf of any AthenaInvest representative.

You are solely responsible for determining whether any investment, investment strategy, security, or related transaction is appropriate for you based on your personal investment objectives and financial circumstances.  You should consult with a qualified financial adviser, legal or tax professional regarding your specific situation.  Investments involve risk and unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.