At the start of each new year, there is one thing I hate doing above all others: Paying my home insurance. I always wonder, why on earth do I do this? I have never had any use for it — ever. Then last year, an illegal campfire was built in Garrapata State Park. We could see the flames from our home. By the end of it, that fire had burned 132,000 acres and became the most expensive wildfire in United States history.
That is how many people have approached the current bull market, which has been going on for eight years — there's no need for portfolio insurance, right?
With a return of 255 percent since the S&P 500 bottomed at 677 on March 9, 2009, the correct strategy in hindsight would have been to borrow as much money as you could and put it all into a long only S&P index fund. In hindsight, there was no need to worry about the European debt crisis, China currency devaluation, oil market collapse, or Brexit vote. The recoveries were always swift with new highs not far behind.
As stocks continue to climb, this 98-month-old bull market seems to have the legs of a youngster. This is the second oldest bull market since World War II. How long did the oldest bull market last? It was from October 1990 through March 2000, a whopping 114 months. Unfortunately, that ended with a 49-percent correction over roughly 2 ½ years. During the most recent full economic cycle that started in October 2002, the bull market lasted 60 months but in the span of 17 additional months, the market lost 57 percent during the correction. The S&P was actually down 13 percent on a price basis over the full economic cycle as can be seen in the table below.