Bear Market Anatomy – Revisiting Russell Napier’s Work (Annotated)

“Anatomy of a Bear Market” by Russell Napier is a “must-read” manuscript. Given current market dynamics, a review seems timely. As my colleague, Richard Rosso, CFP, previously penned:

“A mandatory study for every financial professional and investor who seeks to understand not only how damaging bear markets can be but also the traits which mark their bottoms.

Every bear awakes from hibernation for different reasons. However, when studying the four great bottoms of bears in 1921, 1932, 1949, and 1982, there are several common traits to these horrendous cycles.”

Not surprisingly, after 12-years of Fed interventions, seemingly impenetrable markets, and low yields, investors have become overly complacent. Such is despite repeated warnings to the contrary,

“Every financial crisis, market upheaval, major correction, recession, etc. all came from one thing – an exogenous, unanticipated, event.

Such is why bear markets are always vicious, brutal, devastating, and fast. It is the exogenous event, usually credit-related, which sucks the liquidity out of the market causing prices to plunge.

As prices fall, investors panic-sell driving prices lower. Such forces more selling in the market until, ultimately, it exhausts the sellers.

It is the same every time.

While investors insist the markets are currently NOT in a bubble, it would be wise to remember the same belief existed in 1999 and 2007.

Throughout history, financial bubbles are only recognized in hindsight when their existence becomes ‘apparently obvious’ to everyone.