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A sign board in Toronto displays the TSX close in this file photo from March 16, 2020.Frank Gunn/The Canadian Press

Panics feel eerily similar despite their many differences. This time around I’m quarantining my chocolate for a few days before gingerly removing it from its virus-laden package. The detail is new but the feelings of fear and uncertainty are familiar.

The markets reacted to the virus by jumping off a cliff. Let me be the first to say that I don’t know how things will sort themselves out. But I am optimistic that Canadians will come together and make it through these difficult times.

I root my optimism in history. Many pandemics in the past were as bad or worse than the current one is shaping up to be. For instance, the flu pandemic of 1918 killed my grandmother’s mother and her father along with millions more. Nonetheless, the country managed through its losses and thrived despite a host of calamities over the past 100 years.

(I don’t want to trivialize the current threat. I hope the brave people in our health-care system will be able to save as many people as possible. Lend a hand when you can.)

I also turn to history when thinking about market downturns. Here, the news is better because most downturns tend to be short-lived affairs.

Canadian stocks, as represented by the S&P/TSX Composite Index, fell into bear-market territory earlier this month. That is, the index declined by more than 20 per cent from its former peak. On Monday, the index was down about 38 per cent from its 52-week high. It was below the top it set back in September, 2000. While the figures above do not include dividends, I doubt investors were buying the index for its dividend yield in Nortel’s heyday.

The question I want to explore today is what happened historically after the Canadian market fell 20 per cent from its former highs. To do so, I used the S&P/TSX Composite Total Return Index as my proxy for Canadian stocks with monthly data going back to 1956 including dividend reinvestment.

The index advanced by an average of 9 per cent annually from 1956 through 2019. By my counting, there were 11 bear markets in that time.

In six of these instances, the index climbed back out of bear-market territory within five months of entering it and, on average, it took 9.6 months. The average is heavily influenced by the 46 months it took for the 2000 collapse to finally exit bear-market territory. That’s not a full recovery, mind you; I’m only measuring the point between when the market first fell by more than 20 per cent to when it climbed back above being down 20 per cent from its former peak.

It usually took a few months for the market to reach its lows after first entering bear-market territory. Six of the bear markets bottomed out within two months while it took an average of 4.8 months for the market to reach the low of the downturn.

Perhaps most encouragingly, investors who bought at the start of bear markets generally fared well – provided they held on. On average, the market gained 13.3 per cent in the 12 months after moving into bear-market territory and 34.3 per cent over the 24 months from the bear’s beginning. Subsequent bull markets usually added a great deal to these gains.

There are, of course, a few caveats. It would be reckless to say we know all about bear markets based on only 11 samples. We will run into downturns that are worse than those in the historical record and the current downturn is shaping up to be an unusual one.

In addition, my study is based on monthly data and the speed of the current bear market is such that it has yet to show up in the month-end figures. But by the end of March, the current downturn will take its place in the monthly record.

For what it’s worth, I have been buying stocks in recent days. I expect to continue to trickle money into the market in the weeks and months to come. I know that I won’t time the bottom perfectly, but I am more than willing to bet on the ability of Canadians to make it through difficult times. Be well, stay safe.

Norman Rothery, PhD, CFA, is the founder of

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