Most adults have seen enough detective movies to know that no 2 fingerprints are alike.

But that fact isn’t obvious to kids. Years ago, after learning in school that each fingerprint is different, my kids spent weeks trying to match their fingerprints to other people. They never came close. While fingerprints share similarities in their makeup,* trying to find 2 identical fingerprints is almost impossible.

Like fingerprints, no 2 bear markets are alike. (In this blog post, we define a bear market as a downturn of 20% or more.) Generally speaking, market downturns appear similar. But when you look at what really happened, each downturn was different, which makes predicting future bear markets difficult (though not quite as tough as trying to match 2 fingerprints).

While all bear markets involve a loss of investor confidence, an assortment of factors can cause them, including:

  • Unexpected changes in monetary policy.
  • Political events.
  • Overvalued stocks. (A stock’s current price exceeds its future expected earnings, which increases expectations of a price drop.)
  • Bank failure.
  • Natural disasters.
  • Deleveraging. (Selling assets to have money to pay off debt.)

Many of these events are impossible to predict. And even if you can predict them, you can’t always tell how they’ll affect equity markets.

The challenge active fund managers face

Many active fund managers try to look into the future. They choose stocks for their funds by trying to predict which market segments will perform well.

The differences in the last 2 bear markets illustrate how hard it can be to identify which sectors and segments of the market are susceptible to a future downturn.

Figure 1 shows that when the tech bubble burst in the early 2000’s, IT, telecom, and utilities were the worst-performing sectors. During the global financial crisis, REITs, financials, and industrials performed poorly. On the other hand, REITs thrived during the tech bubble, and utilities was one of the best performing sectors during the global financial crisis.

Figure 1: Performance of equity sectors during tech bubble and global financial crisis

Notes: Calculations based on the annualized returns over the relevant time periods for the various sectors (i.e., the return of the REIT sector calculated from monthly Dow Jones US Select REIT index returns; all other sectors calculated from monthly S&P 500 Index returns).

Source: Vanguard calculations.

Figure 2 shows a 9-box grid called a style box, which shows how domestic stock fund holdings are distributed by primary investment style (growth, value, or blend) and market-capitalization category (large-, mid-, or small-cap companies).

This style box illustrates that during the bursting of the tech bubble, large growth stocks underperformed and mid- and small-value stocks outperformed. During the most recent global financial crisis, large growth stocks performed the best, and large value stocks performed the worst.

Figure 2: Leaders and laggards changed when looking at the market from the 9-box framework

Notes: Calculations based on annualized returns over the relevant time periods for the segments of the market using relevant S&P 500 Index returns.

Source: Vanguard calculations.

Active fund managers’ performance changed too

Active fund managers try to predict which market segments will perform well in the future, but they’re vulnerable to the unpredictability of bear markets too. As Figure 3 shows, success in 1 bear market doesn’t guarantee success in the next.

Top-performing active managers during the bursting of the tech bubble didn’t necessarily stay on top. They were no more likely to stay in the top half during the financial crisis than end up in the bottom half or be liquidated or merged.

We uncovered this information by analyzing all existing funds during the bursting of the tech bubble. First, we bucketed them by performance. Next, we looked at how the top-performing funds fared during the subsequent bear market.**

Figure 3: Bear market performance of active funds that were ranked in the top quartile during the last bear market

Notes: The far-left column ranks all active U.S. equity funds within each of the 9-style Morningstar categories based on their excess returns relative to their stated benchmark during the bear market from September 2000 through March 2003. The remaining columns show how these quartiles performed over the subsequent bear market from November 2007 through February 2009.

Sources: Vanguard calculations using data from Morningstar.

No 2 bears are alike

Unfortunately, no 1 equity sector or fund style is a guaranteed “safe” choice during the next bear market. However, you can follow universal best practices to increase your chances of investing success under any market conditions:

These guidelines don’t guarantee success, but they can put you in a better position to reach your goals—no detective work or fingerprinting required.

*You can’t prove that no 2 fingerprints aren’t exactly alike because it’s impossible to compare the entire population.

**Funds that were either liquidated or merged during the time period between the 2 bear markets or during the financial crisis fell into the liquidated/merged bucket.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against a loss.