With worries about their futures understandably in people’s minds in this recession, they are less likely to take investment risks, so many shares are trading at under equilibrium price….

Also, more equity gets issued on net during bear markets, and on unfavorable terms. Deals get done on more of an equity swap basis. Few shares get issued by new firms.

During bull markets, companies buy back shares expensively. Deals get done where cash is paid for shares of the target. More shares get issued by new firms.

Great note here with alot to think about. Regarding this point though, isn’t this exactly why only a small minority manage to capture the market’s long-term rate of return.

Few if any are inclined to buy stocks when risk premiums and discount rates are high and the future looks very uncertain. They wait until the uncertainty has gone away and the market has bid the assets back up to buy back in. For the investor who wants to outperform over the VERY long-term, isn’t now the time to be zigging while most everyone else is zagging.

Maybe we are near the bottom, maybe it is another 20%, heck maybe another 50% in some sort of Great Depression repeat (but the market quadrupled from 33-37 in the rebound). I have to think that for those with stable employment, adequate emergency cash reserves, and no debt, now is the time to gradually be increasing equity exposure with an eye on the distant future and just ignore the current uncertainty. The average Joe Schmoe will be back in 5-10 years at the tail end of the next upcycle to buy your stocks from you at much higher prices.