How to survive the worst bear market of all time

In Tom Wolfe’s famous essay, The Me Decade, about the 1970s, he wrote about how Americans had abandoned community thinking in favor of personal wealth. “They took their money and ran away,” he wrote.

In fact, there wasn’t much money to take.

Today, with the stock market in meltdown mode, it’s natural to look back to another time of financial trouble: The Great Recession of 2008-2009. The tech bubble burst in 2000. The crash of 1987, let alone 1929 – and all sorts of mini downturns and flash crashes in between.

The one that scares me the most is the long, soul-sapping drudgery between 1966 and 1982—in other words, the 1970s. The stock market went up and down and up and down, but it ended up going absolutely nowhere for 16 years (see below).

Dow chart

Dow chart

Forget lava lamps, platform shoes and Farrah Fawcett, for me that defined the era.

How was it back then? What can we learn from this time? And are we set for a repeat?

Before we get to that, let’s examine the market of the 1970s. The most devastating insight comes from looking at the Dow Jones Industrial Average. In January 1966, the Dow reached 983, a level it would not surpass until October 1982, when the Dow Jones closed at 991. The S&P 500 was almost as bad. After peaking at 108 in November 1968, the S&P stalled, then touched 116 in January 1973, stalled again and finally broke out in May 1982.

Why has the market moved sideways for 16 years? Mostly it was rising inflation and interest rates. The monthly CPI rose from 0.9% in January 1966 to 13.6% in June 1980. Meanwhile, gas prices rose from 30 cents a gallon to $1. To combat this inflation, the Federal Reserve increased the fed funds rate from 4.6% in 1966 to 20% in 1981. This was bad for the market, as higher interest rates made future corporate earnings, and therefore stocks, less valuable. Which partly explains the market’s weak year to date.

American economist and Undersecretary of the Treasury for International Affairs Paul Volcker (1927-2019) (left) and politician and US Secretary of the Treasury George P Shultz speak during the annual meeting of the International Monetary Fund (IMF), Washington DC, September 26, 1972. ( Photo by Benjamin E.

American economist and Undersecretary of the Treasury for International Affairs Paul Volcker (1927-2019) (left) and politician and US Secretary of the Treasury George P Shultz speak during the annual meeting of the International Monetary Fund (IMF), Washington DC, September 26, 1972. ( Photo by Benjamin E. ‘Gene’ Forte/CNP/Getty Images)

According to veteran market analyst Sam Stovall, fear of repeating the mistakes made in the 1970s is influencing the Federal Reserve’s actions today.

“The Fed has told us that it had planned not to make the same mistakes it did in the late 1970s when it hiked rates, but then eased off fears of a deep recession, only to have to hike rates again.” , says Stovall. “What the Fed is trying to avoid is creating a decade of economic volatility. They now want to be aggressive with the Fed’s policy rate and corral inflation so that we have either a V-shaped or at least a U-shaped recovery and not one that looks like a big W (to pronounce “It’s a Mad, Mad, Böse bad world’).”

Stovall, who began working on Wall Street in the late 1970s, was trained by his father, the late Robert Stovall, who was also a high-profile investor and pundit. (The Wall Street Journal ran a funny article about the two and their different investing styles.)

Jeff Yastine, editor of, points to some other unfavorable trends for stocks in the 1970s, noting that “many of the largest US stocks were ‘conglomerates’ – companies that owned many independent businesses with no real growth plan “. Yastine also reminds us that Japan was on the rise back then, often at the expense of the US, and that technology (chips, PCs and networks) hadn’t really had an impact yet. All of this was to change in the 1980s.

Another factor was that the stock market was highly valued until the 1970s. Back then, a group of go-go stocks called Nifty Fifty led the market. This group included companies like Polaroid, Eastman Kodak, and Xerox, many of which sold for more than 50 times earnings. When the market crashed in the 1970s, the Nifty Fifty was hit hard, with some stocks never recovering. I can’t help but think of the potential parallels with today’s FAANG or MATANA stocks — aka tech stocks.

It really seems that we have come full circle. At least that’s what the legendary investor Stan Druckenmiller recently suggested in a conversation with Palantir CEO Alex Karp. “First of all, full disclosure, I’ve had a 45-year bearish bias that I’ve had to work around,” says Druckenmiller. “I like darkness.”

“If I look back at the bull market that we had in financial assets – it really started in 1982. And all the factors that led to it haven’t just stopped, they’ve reversed. So I think the market will be flat for 10 years at best, like this period from 1966 to 1982.”

whoops So what should an investor do?

Let’s dig into someone who was penetrating the market back then. “Well, first of all, I entered the business as a security analyst in 1965,” recalled Byron Wien, vice chairman of Blackstone’s Private Wealth Solutions Group. “I remember it was a time when it was difficult to make money unless you were a really good stock picker. But I remember making money. I remember building my fortune and buying some biotech stocks that have performed well. And I still hold some of them to this day.”

Now let’s go back and take a closer look at what happened 50 years ago. For one thing, it’s important to note that the S&P 500’s dividend yield averaged 4.1% from 1966 through 1982, giving investors at least some income from the broader market. (Reading the Dow’s return at the time proved difficult, but other periods have averaged less than 2%.)

While the 1970s were a terrible time for investors, dividends eased some of the misery by allowing the more diversified S&P 500 to outperform the Dow 30 — something to think about going forward. Unfortunately, the dividend yield for the S&P 500 is now around 1.6%: First, because stock prices are buoyant, and second, because more and more companies are doing share buybacks instead of dividends. However, I would expect the yield to increase as companies increase payouts to attract investors.

The Dow also looked a bit dated back then, as it included companies like Anaconda Copper (replaced by 3M in 1976), Chrysler and Esmark (replaced by IBM and Merck in 1979), and Johns Manville (replaced by American Express in 1982).

Of course, some stocks like Altria, Exxon, and packaging companies did well in the 1970s. “Anywhere where the demand for the products and services has remained fairly constant,” says Stovall. “You still have to eat, smoke, drink, see a doctor, heat your home, etc.”

For some companies, the 1970s were their heyday.

“The nice thing is that there were companies back then that did very, very well in this environment,” says Druckenmiller. “That was when Apple Computer was founded [1976]Home Depot was founded [1978]Coal and energy companies, chemicals made a lot of money in the 70’s.”

Cyclical areas such as consumer discretionary and financials did not fare as well.

Some of today’s investor insights are always true: avoid both overvalued stocks and those of slow-growing companies. It can also pay off to own and diversify dividend-yielding stocks. And it’s worth noting that if we have some sort of replay of 1966-1982, perhaps stock selection becomes more important than passive investing and index funds.

All was not dark in the 1970s. The disco balls lit up some stocks. You just had to look far longer to find them. That is also a likely scenario for the future.

This article was published in a Saturday Morning Brief on Saturday September 24th. Get the Morning Brief delivered directly to your inbox by 6:30 a.m. ET Monday through Friday. Subscribe to

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