The FTSE 100 currently stands well below its June 2007 peak of 6,732. With the widely accepted definition of a bear market being one which has fallen by 20 per cent, this means we were officially in a bear market by this July, when the index moved below 5,385. Very few people predicted the implosion of the global banking system and now the future is equally uncertain. The severity of the crisis being faced is yet to unfold fully as we wait to see how hard the broad economy will be hit.

Just to highlight how bad the current bear market has been, it is worth taking a trip down memory lane for comparison. Going back to the 1920s, there had been 21 bull markets not including the most recent. Of these, 14 lasted fewer than 600 trading days. The majority of these runs were ended by short bear markets with falls of less than 25 per cent. Conversely, the seven bull markets lasting over 600 days were followed by more painful falls. Of these, there were three falls of between 25 per cent and 30 per cent, two of between 31 per cent and 40 per cent and two of over 40 per cent. The most recent bull market ran for 1,075 trading days. So, looking at things statistically, it is no shock that the fall has been so severe.

What is of more importance is the future, but it is almost impossible to predict how long and deep the bear market will be. This creates an obvious dilemma. While some shares do look exceptionally good value at the moment, there remains serious downside risk. Markets tend to over-react in both bull and bear scenarios. History tells us that share prices will retrace their previous highs, but how long the recovery will take and whether it is already under way are currently questions without definitive answers.

The stock market has recently been very volatile. There have been remarkable short-term movements in share prices, even among the largest companies. Looking purely at fundamentals, there are undoubtedly some very attractive investment opportunities around even if we ultimately enter a severe global recession. A large dollop of bad news has already been factored into valuations and earnings forecasts have been cut in many cases. The problem is that negative sentiment could continue to push share prices down in the shorter term, meaning that investing in shares remains a very risky business for the time being.