The Undeniable Math: Why Bulls Prevail and Bears Fall Behind

The Decisive History of S&P 500 Compounding

It is critical to understand that stock prices represent claims on real, tangible assets like factories, equipment, or intellectual property. These foundational assets naturally appreciate in value with nominal economic growth and inflation. This structural tailwind means that, over decades, stock prices have consistently risen. While market corrections and bear markets are inevitable, they are relatively short pauses compared to the expansive, long stretches of gains.

Crashes are rare outliers, not the norm

The financial media thrives on the drama of the bull-versus-bear debate, presenting both camps as equally likely to succeed. This "horse-race" narrative sells clicks, but it obscures the truth. The long-term scorecard is undeniably lopsided. Bulls win by capturing the powerful compounding and growth inherent to the market. Bears lose by sitting on the sidelines, attempting to time the market, or, worse, short selling stocks that have performed best.

Bull markets have consistently lasted much longer and risen far higher than bear markets have fallen. Even highly skilled market timers struggle to beat disciplined buy-and-hold returns. This is because missing only a few strong recovery months severely, and permanently, damages the accumulation of wealth. The powerful compounding effect accrues only to those who stay invested through volatility.

Ironically, extreme bearish sentiment often serves as a signal for long-term opportunity rather than a predictor of sustained downturn. Betting repeatedly on crashes works directly against the structural forces that persistently push prices higher over time

Persistent bearish investors, often known as "perma-bears," almost always underperform their peers. If you ask for their longer-term performance record, they frequently demur.

Consider the recent actions of some of the most vocal bears, like Michael Burry and Jim Chanos. They have recently closed their hedge funds, pivoting instead to public commentary. This is telling. Hedge funds traditionally earn lucrative management and performance fees, commonly 2% of assets under management plus 20% of profits. Abandoning this profitable business model likely reflects significant investor dissatisfaction and weak fund performance. For all the bravado, consistent bearish bets rarely translate into consistent financial success.

Data from Yardeni Research paints a decisive picture. Since 1978, the S&P 500 price index has risen approximately 66.6 times. This massive growth occurred despite enduring six separate bear markets, each lasting roughly a year and incurring declines of around 33 to 35%. This pattern highlights how fleeting and infrequent market drops are when measured against decades of upward momentum.

Disciplined investors who embrace this longer-term upward trend are ultimately rewarded. Do not be distracted by the media's crisis-driven framing. Betting on crashes is a low-probability wager that runs counter to the dominant long-term trend powered by rising real asset values and inflation. Successful investing is about aligning with this prevailing upward direction and treating crash narratives as interesting, but ultimately expensive, distractions.

By Jon Markman, Contributor