There are only a few good things about getting older and one of them is learning from the past and being able to recognize things. The financial markets are beginning to look more like we’re going through more than a “correction”.
It’s feeling and looking like I am once again wrestling with a “bear” market. For those of you newer to the investing game, a “bear market” occurs when stock prices drop 20% or more from their highs. The NASDAQ (which is where most tech stocks trade) is currently in a bear market, while the Dow Jones Industrial Average and the S&P 500 are not yet there but moving closer.
But a bear market is much more than the 20% drop. A bear market lasts anywhere from 6 to 18 months. It is a painful time as you watch your investment values dwindle down. The bear is relentless in its march lower. It may tease you with a day of gains or even a few days of gains, but the march lower quickly returns. When you are wrestling with a bear market, every fiber of your being wants to turn and sell out, run away and hide somewhere safe, like the bank.
When you are deep in the match with the bear, you see the markets open and moving up and your hope begins to rise and you think maybe this is the end; maybe this is the time when the relentless selling ends; but as the day moves on the bear raises up and fear again takes over. Sellers enter the market and the day, like so many other days ends with prices once again going down. As the days turn into weeks and then into months, you begin to question your stamina. “How much longer can I wrestle with this bear?” You wonder when it is going to end.
Bear markets thrive on sellers. Fear of the bear causes sellers to act and the selling momentum grows and grows until finally there are no more sellers and the bear dies with a big THUD. One final down day.
I’ve wrestled the bear many times and it feels like I am once again about to enter the ring for one more match. Because we had years and years of low interest rates, money that would have typically been invested in safer investments like CD’s and Treasury bonds flowed to stocks looking for better returns and pushed stock prices higher than maybe they should have been. Then add to that, some of the large amounts of fiscal stimulus we have seen has also made its way into stocks and driven up prices even more.
The stock markets have been due for a sell off , in my opinion for some time. With inflation way up and the Fed raising interest rates to combat it, investors are feeling uneasy about the future of the economy for the next couple of years. The pool of sellers is growing due to fears of higher interest rates; potential recession and forecasted shortages.
It feels a lot like 1987, or 2000-2002 or 2008-2010 and the first quarter of 2020. If you sell when wrestling the bear, you lose. The only way you win is to stand firm in your investment strategy; use the bear as a time to add good investments to your portfolio; be patient and know that bear markets end.
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
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