Email Newsletter #12
Bears and Bulls
When asked what the markets will do, J. P. Morgan famously told the questioner, “they will fluctuate.” Market fluctuation is why market investments outperform most other “safe” investments. In this way, fluctuation is our friend. We are rewarded for patience, courage, and persistence in the face of down markets.
When a market falls more than 20% from its peak it is called a bear market. Bears, when they attack drag their prey downward. And just like the Grizzly Bear’s prey, a bear market can feel like your heart and lungs are being ripped out. When the market rewards you with a 20% rise (for your patience, courage, and persistence) it is called a bull market. Think of the matador thrown upward by the Bull.
In a Bear Market, it’s hard to get out of bed and come to work. I usually get up three or four times a night to check the futures. China’s and Europe’s markets never become so interesting than they are when we are in a Bear market. Shanghai Stock Exchange opens for the next day at our 9:30 pm. EST. London Stock Exchange opens at 3 am our time. Perfect. In a bear market, I check them before and during the night. But it’s like pulling the band-aid off three times a night to see if the wound is healing; it never helps.
During a Bull market when everything is peaches and cream, I can wait until my 6 am coffee to look at the overseas markets. And I can’t wait to get to the office and see how well all our accounts are doing. I’m a happier and more content person.
The yin and yang of the markets tint everything in a financial advisor’s life whether they admit to it or not. Like every profession, we like to do a good job and want positive results. But when the best, most thoughtfully constructed portfolio is still down 20% you just don’t feel very good. Even a ringing sounds different in a Bear Market.
Logically and intellectually we know the Bear will not last. Going back to the year 1929 the last 10 Bear Markets lasted an average of 24 months. Contrast that with the last 10 Bull Markets since 1926 that lasted an average of 55 months. Clearly, we have more time in the sun than in darkness. We also have greater returns—the average percent down in the last 10 Bear Markets is 45%. The average Bull Market gains were 160%. (Using the S&P 500 composite.)
Another thing to remember is that not everything we own in a portfolio is invested in the Markets. These holdings are those pesky positions that are up 2% when the market is up 25%. They are also the wonderful, thank god we have them, holdings that are still up about 2% when the market is down 25%.
So as we enter the late stages of an awesome Bull Market we can’t help but wonder when the next shoe will drop. Just remember this about Bears, there is a silver lining. While our values temporarily go down in a Bear Market, much more money is made when you can buy during a Bear than buying during a Bull. So if you’re buying, be happy. If you’re holding, stoically suffer the pain—it will pass! If you are drawing down for income, be careful about where you take the money, and don’t sell next year’s winner.
Thanks for reading, MK
