5 Focus Areas During a Bear Market

Bear markets happen!, which means stocks are generally going down in value. These are the times that test investors resolve. Typically the best thing to do is nothing if you are properly allocated and have a long term investing horizon. Bear markets are the opposite of what is called a bull market, when stocks are going up in value. No one knows exactly what the stock market will do over the next few years, but bear markets happen. No one knows for sure when, but a Bear market has certain advantages for long term investors and especially younger investors in their 20’s, 30’s and 40’s. First, a bear market is broadly defined as a market in which prices are declining or falling, which encourages selling. When an index like the S&P 500 (comprised of 500 big US companies from different sectors) falls 20% or more over a period of at least 2 months. Therefore prices of equities continue to fall for a good stretch of time. The average length of a bear market historically is about a year. Everyone loves when the market is skyrocketing every month, as has been the case for the last 10 plus years. But, this constant rise makes it more and more expensive to own shares of strong and profitable companies. Therefore many people are left out. Here are a couple concepts to keep in mind if a Bear market wakes up this spring from his hibernation: 1. Focus on shares of quality companies and stock index funds. As a Bear market roars on, this can be a great time to load up on shares of quality companies at a discount. Take for example some of the high quality dividend aristocrats and Kings that have paid consistent dividends throughout many bear markets. Value investors like Mr. Buffett typically see this as a buying opportunity. http://oracle.davidkanter.com/2018/11/06/dividend-viking-kings-3m-ko-frt-jnj-awr/ 2. Normal cycle. There is a normal business cycle that seems to go up and down. Things do not always go one way, the markets need to work out any inefficiencies by having corrections or downward cycles. This is to be expected and embraced as an opportunity. Governments, societies, companies are things made up of millions of people making decisions, and these decisions typically have consequences for markets for better or worse.   3. Asset Mix. If one has the right asset mixture and exposure, then they are not that worried about the ups and downs of the market. For me personally I generally use Ray Dalios “All Weather” portfolio mix. This portfolio allows me to not care what the market is doing each week and month. We describe the all weather portfolio in our review of the book “Money, Master the Game”:   http://oracle.davidkanter.com/2018/08/06/book-snapshot-money-master-the-game/   4. Focus on dividends. If you have stocks that pay dividends, then it really does not matter what the per share price is. In fact, if you have dividend reinvestment, then you may like the share price going down, you buy more shares! Most folks focus on Dividend Kings and Aristocrats as defensive plays. These companies have 25 to 50 consecutive years of dividend payments, which means they have weathered a few financial bear markets. If you have a Dividend Reinvestment Plan or DRIP going, then a bear market is a great time to pick up more shares at a cheaper price. This increase in shares will create more income in the future.   5. Buying opportunity. During a bear market you can load up on more shares of quality companies at a discount. Your dollar cost averaging goes further and pushes down your average per share cost. Bear markets are a perfect time to take advantage of dollar cost averaging or DCA. DCA is when you buy shares of say an index fund or ETF over long periods of time, creating an average price paid for the stock. During down times you pick up more shares. Dollar cost averaging is one of the awesome math concepts that can work in a long term investors favor. Dollar cost averaging combined with DRIPS and sprinkled with some compounding can create a powerful wealth building effect over time. http://oracle.davidkanter.com/2018/11/29/dollar-cost-averaging-a-money-viking-cartoon/   The bottom line is the bear is to be embraced like a big fluffy teddy bear. It is normal, can be managed and may be the best opportunity of you investment life.
This is not investment advice for any one individual. Please see a financial professional for questions about your unique situation.

One thought on “5 Focus Areas During a Bear Market

  1. This is an awesome post with great advice. Most importantly, is to know that the bear market is like the yin to the yang of investment. Without 9ne, the other cannot exist. They balance one another. Thanks for weighing in, on this trending topic at a crucial moment when everyone is going nuts.

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