If you watch the stock market news, you have probably heard that we are in a BEAR market.
What is a BEAR market?
It is a decline in the markets of 20% or more in a two-month period. Generally, the Bear indicates a downward trend and may be triggered by a correction of 10-20% in a brief period. Stock markets go up and down and a Bear market is generally followed by a Bull (upward trend) market. Of the 26 Bear markets since 1928, 27 Bull markets have followed. Investors ride it out as they wait for signs that the Bear is in retreat and the Bull is coming out of the gate. Bear markets have investors worried that they will also include an economic recession.
The last Bear market began in February of 2020 and ended in March of 2020 lasting 33 days with a market downside of 35.62%.
The average length of a bear market since 1928 has been 289 days. Bull markets have averaged 991 days a fact that is easily forgotten when the market is plunging. It is important to look at the % of the moves down. The time frame leading up to WWII gave us the longest Bear market.
So, when will it be over? How do we know when to buy stocks again? When and what to buy are highly personal decisions that depend on your overall financial situation.
I look for several key indicators as my crystal ball is not always reliable:
- I like to look for large levels of fear and worry. Many like to watch the VIX (also known as the fear index). I do not think we have had this peak yet as the fear shows in what investors are doing with their money. The technical term for this is capitulation. Watch the VIX and when it gets to 40 with a nice long list of 52-week lows in stock prices, the bottom is close. I don’t generally do much if anything with options, but people are usually buying puts when they think stocks are going down.
- Seeing a big move in stocks headed to the basement may mean a bounce is on the way. The lows may be in here which may give us a tradeable bounce. The lows on your favorite stock, the one Grandma said to never sell may signal a buying opportunity.
- Like a 2 for one sale! Sometimes a little upside is just a rally in a longer bear market. A friend of mine who has many years in the business, and I had offices a couple of doors down in the 1980s. This fellow used to say, “Buy’em when you are puking on your shoes.”
- The best action may not seem inviting, but that does not mean it is the wrong action! Now individual investors mostly want relief from ugly numbers. It is tempting to sell into strength, but unless you need the money “stand pat” as my momma would say!
- A selling climax is usually heralded with a high volume and a big move down. I have not seen that just yet. Therefore, RIA’s get paid to watch the ugliness because many things can happen in a day.
- It is good to see margin debt (borrowing against your stock portfolio) decline dramatically.
- It is critical to know your tolerance for risk, which is sometimes higher than is wise.
The story of Muriel Siebert
Muriel Siebert started her firm at 70, which was way ahead of her time. If you are really worried about the stock market, which you cannot control, here’s a famous Muriel recommendation.
Take the big envelope with the statements of your accounts and fix yourself a favorite beverage. Look at the big envelope and sip on your beverage. Then with all the resolve you can muster, get up and make another beverage. Back to your comfy chair and the big envelope and look through the rest of your mail, you don’t have to open it!
At last, the path is clear. Enjoy your beverage and throw the envelope in the trash! Muriel was smart and successful. Be like Muriel! Know thyself!
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