The one thing we know with certainty with bear markets is that they will eventually end. The problem of course is working out when.

In market speak, “capitulation” is the point where everybody has had enough, when investors can take no more pain, the bears have sold everything they had to sell and almost everybody believes that things can only get worse.

Understanding what the moment of capitulation “feels like” is important because it will be the time when our resolve as long-term investors is most seriously tested. Playing through this moment in our minds before it occurs, can help us understand what we may be feeling when markets approach their bottom. This knowledge can help us fortify ourselves emotionally, thereby strengthening our resolve to stick with our investment programs through the toughest of times.

While I am not silly enough to think that I can “call the bottom of the market” – Monday of last week showed some of the hallmarks of capitulation. For this reason, it is a day worth reflecting upon.

You may recall that this time last week equity markets had been falling relentlessly day after day. The preceding fortnight had seen some of the biggest one day falls in a hundred years. It felt like there would be no end to it – that even our great Australian companies – stocks like BHP and CBA – would just keep falling until they hit concrete. Even the most seasoned and resolute investors were rattled. And then…. the miracle happened – it stopped – and markets began to rise. Since that day, only a week ago, the ASX 200 Index has rallied from below 4400 to nearly 5200. That’s a rise of +18% in a single week.

While this bear market probably has a long way to run, those investors who considered selling last week would be glad they didn’t.

Strange as it sounds, it is only when sentiment hits rock bottom, that markets can reach their lows and begin to rise again. Often these lows can occur on days when there is very little volume. Nobody is buying. Everybody has run out of optimism.

Is the bottom of the market behind us? Honestly, nobody really knows. If somebody tells you they know, then they’re not a person you should take advice from – at best they’re over estimating their ability, at worst they’re being dishonest.

What we should reflect upon though, is that our great companies are not all going to go to zero. That there is a future, that this pandemic will eventually end, and that fear will ultimately be replaced with optimism, ingenuity and entrepreneurialism.

Hang in there, we will get through this.