The Forgotten Bears
(1900-1922)

The following article is an excerpt of Ron's newly-released E-Book:
"Ten Bear Market Survival Strategies."

Ron Rowland

When the topic of bear markets arises, the discussion typically starts with a reference to the Tech-Bubble Bear or the Crash of '87.  As the discussion continues, some people recall the 1973-1974 bear market, often referred to as the last "real" bear market that the U.S. has experienced.  Finally, the conversation usually concludes when discussing the 'Big One,' the Crash of 1929. 

However, 1929 was not the first bear market in U.S. market history.  Before that fateful Thursday in October, there were seven other bear markets  

We will begin our review of 20th century bear markets with the seven forgotten ones.  These bear markets are numbered on this chart and explained below.

Forgotten #1

It was quick.  The first downward leg began in April of 1900 (it was actually a continuation of a December 1899 decline) and was over by October the same year.  In the process, the Dow fell from 66 to 53, a quick 20% plunge to start the new century.

Forgotten #2

It was brutal.  The Dow peaked in the summer of 1901 at a level of 78.  Over the next two and a half years, the Dow would lose 46% of its value in a two-stage decline.  The first 20% drop was relatively quick, which was followed by an 18-month consolidation period, before making its final plunge down to a level of 42.

Forgotten #3

It was agonizing.  In early 1906, the Dow closed above 100 for the first time.  However, that level proved elusive and the Dow plunged more than 48% over the next two years.  The Dow went from a peak of 103 in January 1906 to a low of 53 in late 1907.

Forgotten #4

It was tolerable.  Once again the Dow peaked when it reached 100 in late 1909.  A year later, it had dropped 26% but was able to mount a small rally and cut the loss to just 14% over the next ten months.  However, the rally stalled and the Dow fell back to the 73 level in September 1911 to complete a 27% bear market.

Forgotten #5

It was expected.  Tensions among many European powerhouse nations began to swell in 1912.  That fall, the Dow peaked in September 1912 at 94 before beginning this two-stage bear market.  In the first stage, the Dow dropped to 72 for a 23% decline.  Like the two-stage bear of 1901, it spent the next 18 months in a trading range.  On June 28, 1914, Gavrilo Princip assassinated Austrian Archduke Franz Ferdinand.  A full month later, on July 28, Austria formally declared war on Serbia.  By July 30, Austria and Serbia were joined by Russia in mobilizing for war.  July 30 was the last day the United States stock markets would trade until December 12.  The Dow dropped 23.5% in that session.  Overall, there was a 43% bear market in less than two years.  Recovery was quick, and by November 1916, the Dow had reached a new all-time high.

Forgotten #6

It was a quick two-stager.  In 1916, the Dow reached a new high of 110 and quickly fell back to 87.  It traded between 90 and 100 for half a year before making its final plunge to 66 in late 1917.  It was a 40% decline in just 13 months.

Forgotten #7

It was on schedule.  In the first two decades of the 1900s, major market cycles were occurring every three to four years.  The Dow's peak of 120 in the year 1919 was no exception.  It began right on schedule.  Over the next two years, the Dow declined 46% to a level of 64.

These seven major bear markets occurred in a 21-year time span.  A major bear market, with an average decline of 38%, occurred every three years.  To put that into perspective, remember that there has not been a 38% bear market for the Dow since 1974.  A century ago, they came every three years on average. 

The early 1900s were a brutal and barbaric time to be an investor.  In many ways, the U.S. market was an "emerging market" at the turn of the century.  Perhaps those early bears are easy to dismiss as typical events of an emerging market. 

Maybe that is why these forgotten bear markets are seldom discussed.