If you remember from yesterday’s post, the original question posed was asking about passive investing in a “secular bear market”. I thought I would touch upon the meaning of secular as it relates to investing today.
What Is A Secular Market?
A secular market is basically a very long term “trend”. There are three main types of “trends” that get thrown around with rudimentary technical analysis:
Primary Trend: this can last for about a year or up to a few years.
Secondary Trend: this is an interruption in the primary trend (in the opposite direction) for a few weeks to a few months
Secular Trend: this can last for very long periods of time, generally ranging from 5 years to a few decades. A secular trend is not so much interrupted by Primary trends as it is a string of Primary trends (alternating Bull and Bear) in which the Primary trend that opposes the Secular trend is routinely smaller in magnitude than the Primary trends that make up the Secular trend. Uh… that’s best explained with an example! A Secular Bull Market would be one in which the market goes up for say 20 years and is made up of alternating Bull and Bear Primary trends. BUT the Primary Bear trends tend not to completely wipe out all the gains of the previous Primary Bull trend, so it’s kind of like two steps forward and one step back for many years.
A Secular Bear Market is one in which the Primary Bull Markets don’t fully erase the losses of the previous Primary Bear Market.
Secular markets tend to move in cycles, or predictable though not regular patterns, so that a secular bull market is followed by a secular bear market.
Cool, I didn’t know that there were trend classifications. I’ve heard the term “mean reversion” of markets. I guess this would be related to secular market behavior over the longer term.