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Saturday, March 28, 2009

Average Gains in First Year of a Bull Market

With gains this week, we are officially in a new bull market. I hope you all did some buying near or at the bottom and are like me, looking for an opportunity to take profits. We won't know if this is another cyclical bull market in a long-term secular bear or the start of a new secular bull market until it ends.

click chart courtesy of for full size image

It does not really matter as I added to positions very close to the absolute bottom and plan to take profits as the market goes up. That will give me funds to buy any major "corrections" or bear market declines from the current level.

If this is a major new bull market, what sort of gains can we expect?

In the Fidelity article titled "How Will the Bear Market End? Historical patterns of stock market reversals" certified financial advisor Dirk Hofschire says the average gain in the first month of a new bull market is 12% of its entire gain. In the first year, we usually get 40% of the total price gain and 45% after counting for dividends.
"evaluating all the bull markets since 1930, the first month of a new bull market on average has provided more than 12% of an entire bull market's gains, with an average return of 14% during these initial months (see Exhibit 3, below). Within six months, more than one quarter (27%) of an entire bull market's performance (on average) was already in the books. The first 12 months of the average bull market has provided more than 40% of an entire bull market's price appreciation, yielding on average 45% for investors -- well above the category's long-term average annual return of 10%. So while bull markets typically last an average of three years and have even spanned an entire decade, the biggest bang for the buck has typically come in the initial months of the rebound."

What gains have we seen for this new bull market?

click chart courtesy of for full size image

This chart above shows the S&P500 (charts) is already up 20.6% from its low on a closing basis. The DJIA and NASDAQ100 indexes are up 18.77% and 19.93%, respectively.

Major US Index Charts:

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