Now that the bear market has officially arrived, it may stick around and gnash its teeth for a while -- until it's scared away those who remain.

THE BEAR HAS ARRIVED. The Dow Jones Industrial Average last week qualified for the widely accepted definition of a bear market of a 20% drop from the highs. The good news is that once the decline reaches that arbitrary 20% mark, based on history, the market has suffered most of its losses. The bad news is that the decline typically drags on for some time, and time may be the worst enemy. Investors may initially try to grab erstwhile highfliers that have crashed and burned but rarely regain their former status. And as the decline wears down investors' psyches, they tend to bail out at the market's nadir, when things look bleakest -- and when the greatest opportunities present themselves.

The post-1940 average bear market (as defined by the Standard & Poor's 500 index) produced a decline of 30.4% from a peak that took 386 days to reach its trough, according to data compiled by Bespoke Investment Group. By the time the market was down the requisite 20%, the average bear market was 74% completed. Based on those averages, the bear market would have another 118 days to run and would face losses of another 14% from current levels.

Rarely does the market get a short, sharp shock, as in 1987, when the bear market lasted just 101 days -- with most of the total damage of 22.51% done on Black Monday, Oct. 19. The longest march downward was the 1973-74 decline, which took 630 days and sliced 48.2% off the S&P.

BUT BESPOKE DEFINES two separate bear markets following the bursting of the technology bubble -- an initial 36.77% drop from March 2000 to September 2001, punctuated by a brief, post-9/11 recovery until the next decline of January-July 2002 of 31.97%. In the minds of most investors who suffered through that period, it was three long years of false starts and frustration until the recovery really got under way, in March 2003.

Signs of bear-market fatigue already are becoming evident. Investors have yanked more than $80.4 billion from domestic equity funds in the past 12 months, according to Investment Company Institute data parsed by Bianco Research. Overseas funds drew $75.7 billion from American mutual-fund investors, leaving a net equity fund outflow of $4.7 billion.



What's more, there have been few hiding places other than commodities, observes Jack A. Ablin, chief investment officer at Harris Private Bank. Even Warren Buffett isn't immune, with Berkshire Hathaway (ticker: BRKA) off 21% from its peak.

The foreign stocks Americans have been flocking to lost nearly as much as U.S. equities, despite help from the falling dollar. The MSCI EAFE, the benchmark for developed markets outside the U.S., suffered a negative 10.58% total return in the first half, according to Bianco Research, compared with a negative 11.91% for the S&P. Emerging markets were slightly worse than the EAFE, with a negative 11.64% return, according to MSCI's measure. Even the once hotter-than-hot China market has gone into a deep-freeze; the iShares FTSE/Xinhua exchange-traded fund (FXI), a popular way for Americans to play that market, is down 43% from its high last October. Bonds other than Treasuries lost money in the first half, especially corporates, junk bonds and municipals. Meanwhile, the Dow Jones-AIG Commodity Index returned 27.23% in the first six months of 2008.

Yet there's little prospect for relief in the near term, especially as the second-quarter earnings reporting season is about to kick off. Despite its near 20% retreat, the S&P 500 remains too high relative to prospective earnings, says Ablin. Even though analysts have slashed their 2008 earnings forecasts to just 5.8% gains from 15% at the beginning of the year, he thinks they're still too optimistic.