Do We Need a Long Bear Market?

Spencer Jakab argues that while recent downturns have been short—markets historically took 81 months to regain highs when a bear market coincided with a recession versus 21 months without one, and the past 16 years have seen recoveries in under eight months—many investors, particularly those under 40, lack memory of long, severe drawdowns. Defining a crash as a 40%+ drawdown, he warns that the combination of more young participants and larger account balances means dollar losses would be far more painful this time around, even if percentage declines are comparable to past events. The practical takeaway for institutional and private investors is to prepare for the inevitability of a severe, potentially prolonged bear market by diversifying, avoiding leverage and concentrated positions, and focusing on survival rather than market timing.

Analysis

Spencer Jakab argues that investors are underprepared for a long, deep bear market, citing historical recovery times: when a bear market coincided with a recession the average time to regain prior highs was 81 months versus 21 months without a recession, while the past 16 years of downturns have typically resolved in under eight months. He adopts a 40%+ drawdown as his crash threshold and notes there have been no extended-duration crashes since 2008, creating a cohort of investors—especially those under 40—without firsthand experience of protracted selloffs.

Jakab highlights behavioral and dollar-risk dimensions: younger investors may lack memory of severe drawdowns, while middle-aged and retired investors face larger absolute dollar losses (example: losing 40% of $100k versus $1m). His personal anecdotes emphasize that human capital and the ability to continue contributions can mitigate long-term damage, but larger account balances increase psychological and financial strain.

The practical portfolio response he recommends is conservative: diversify, avoid leverage, and eschew concentration. Because timing a crash is essentially impossible, prioritize survivability—stress-testing for a 40% drawdown, maintaining liquidity, and monitoring recession signals matter materially given the much longer historical recovery when recessions accompany bear markets.

Key Decisions for Investors

• Stress-test portfolios for a 40% drawdown and quantify absolute dollar exposure across accounts to gauge potential pain and liquidity needs
• Eliminate or materially reduce leverage and highly concentrated equity positions in favor of broader diversification and higher-quality liquid holdings
• Maintain or increase systematic contributions where feasible (dollar-cost averaging) to take advantage of fire-sale prices if human capital and cashflow permit
• Reassess retirement withdrawal plans and consider defensive adjustments or hedges for clients with large absolute equity balances to reduce sequencing risk
• Monitor recession indicators closely since recoveries historically take ~81 months with recessions versus ~21 months without, and size duration/liquidity accordingly