Berkshire Hathaway
1974 and 2008

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By EliasFardo
November 20, 2008

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I have this cynical belief that markets will behave in such a way as to disappoint the greatest number of people. Sometimes a bear market will set an early low, maybe on very strong volume and dramatic moves. We saw this in October. But bears love to punish. They give you an early strong kick in the face and then tease you with hope. The market may rally, but eventually there is yet another low. The Dow closed at 8,175 on October 27, rallied, fell again, and closed at a new low today, November 19, at 7,997.

The only market in my adult lifetime that even compares to today was in 1973 -1974. In 1974, the first low was set on October 4, 1974. The market then rallied, and fell again to the final low on December 6, 1974; a pattern very similar to what we are seeing now. After the second low in 1974, the market marked time for a short period before moving strongly up, hitting 1,000 by March 1976.

The same thing happened in 1982. On July 18, 1982, it set a low of 788, rallied, and fell to a new final low of 776 on August 12, 1982. From there it rose quickly to 1,287 in November, 1983.

On October 19,1987, the market crashed to 1,738. It never closed lower than that, but got close on December 7, 1987 when it closed at 1,766.

Now, I know that there always is a penultimate low, and you can see in the charts what you want to see. And I am not saying that this is the bottom, ( but if it is, you heard ... ) but it feels much more like a bottom than October 27. Whether it is or not, this is what a bottom looks and feels like.

This type of pattern makes sense to me. It is like the market is searching out the last pockets of optimism and methodically destroying them. Those not dissuaded by the first low are encouraged back in, only to receive one more gigantic dose of despair. Investors can only take so much of this kind of punishment. How many times can you be crushed, rekindle hope, and be crushed once more before you stop coming back? I don't know about the rest of you, but I have had enough pain for one market cycle.