Tuen Draaisma - Lessons from bear markets past

Tuen Draaisma is chief equity strategist at Morgan Stanley (with good form on reading the markets) - his lessons from bear markets past...

1) Valuations get very low indeed 

(a) Shiller PE to 10x

(b) Price to NTA of 30%

2) Equities become cheap slowly - average duration of a bear market is 14 years

3) Sentiment is not hugely negative at the bottom - no climactic final sell-off on high volumes, in fact the opposite final slump more likely on lower and lower volumes - then subsequently higher volumes at higher levels confirm bear market is over

4) Patience - equities do trough during recessions but they do not anticipate recovery by 6-9 mths - that is there is not much anticipation of the upturn in prices prior to the end of the bear market

5) Times have changed but the rules have not

6) Don't fight the Fed - when the Fed cuts rates and equities are cheap you should buy - but wait for the signal - there has been no signal yet...

7) Fixed interest markets have given some good warning signals - government and corporate bonds rally on average 10 and 4 months before equities reach their final trough...