Sometimes the market feels like an upside-down day.
Shares rose Tuesday morning after the worst inflation figures in 40 years. (Of course, they went down soon after.) After that, traders had enough and sent the stock up again on Wednesday.
As things start to go wild and stocks fall, two scary words come into play: bear market.
Instead of embracing fear and getting into a sell-off situation, research analyst Matt Clark and I look back at some recent bear (or almost bear) markets to see what we might expect if things go south this time.
Check it out in this edition of Investment with Charles.
What did we learn from the corona crash
Matt Clark: Let’s start with the last bear market in 2020 during the COVID crash:
Inventories went up, then COVID-19 cases attacked. We started to see locks. Then we started seeing it coming to the United States in February and March.
At this point, the market simply decided it was time for a break. As of March 1, the S&P 500 began to move into negative territory. When all is said and done, the overall returns from February 2 to March 22 showed that the S&P fell by about 30%.
Charles: In the blink of an eye.
It was a very interesting bear market. You began to receive these spirits [the pandemic] Arrived in February when parts of Europe began to lock up.
We fools in America were like, “Oh, that’s interesting. Italy is closed. Well, what’s for lunch?” It never occurred to us that the same thing would happen on our shores soon after.
Of all the bear market scenarios we look at, the 2020 corona crash is the least relevant because it was a unique once-in-a-century epidemic that we were not really prepared for.
Then this was of course corrected by the most aggressive Fed incentive in the history of the Federal Reserve itself. This is one of those case studies that may be interesting in an academic sense, but it’s hard to see history going back that way.
slowing down: Yes. It was a sharp decline in a very short period of time, but then things balanced out and the market rose back into positive territory. And in fact, I think it closed 2020 with a profit.
A market close to the 2018 bears looks familiar
slowing down: This is not your typical bear market, but I thought it was a good barometer. I’m talking about the third and fourth quarters of 2018. We got very close to the bear market.
Looking at the second half of 2018, the S&P 500 rose 8% through October. Then we started to see a drip down. This led to a decrease of about 14% – in the repair territory, but not really in the market territory.
Charles: Yes. I think this is an interesting example because there are some parallels to today.
What happened in 2018, after years of unusually loose policies … Remember, after the collapse of 2008, the Fed did what was, at the time, an unprecedented amount of incentives: 0% interest, quantitative easing, QE Infinity. You remember it all.
It took them years to reduce it. And the Fed started being aggressive around 2018.
It’s hard to ever pinpoint what caused a bear market or a fix, but that’s what changed the market perception. There was a lot of concern that the Fed had been waiting a little too long. And now they have to go a little too aggressively.
As the Fed raises interest rates it is bad for profits. This is bad for the current value of future profits that you are discounting to today’s prices. This is bad for stock prices.
It is similar to what we experience today. Inflation did not get out of control, and we did not get out of an epidemic. But we are dealing with a very loose monetary policy.
It was in the range of an official bear market. And if you were dealing at the time, it felt like a bear market.
This is an interesting reception. Is this the exact model we are looking for? I do not know, but I think it’s a good example.
I think this is a decent test case of how this year can feel.
Can we see another dot-com crash?
slowing down: The last bear market I want to highlight took place from May 2000 to April 2003. This is the famous dot-com bubble.
Shares stabilized slightly in positive territory and then fell.
We have seen some higher bumps in the entire bear market, but, at the end of the day, the markets have dropped to 45%.
Charles: We had a good faith bubble in the dot-com stocks. And really, technology in general. Looking at the market in general, stock prices have been ridiculously priced. The technology sector in particular has been absurd.
I just cut teeth in the industry at that point. I was looking for Yahoo !, which was still a stock that was important back then. It trades in sales 30 times!
And I remember some analysts trying to justify a 30-fold valuation of sales. I just got out of college, and it still seems a little ridiculous to me.
But what happened in 2000? The bubble finally burst. Technology stock prices have become unbearably high. And these ridiculous business models have been exposed.
You started to see losses in profits and you started to see that the game was over. People realized: “It’s ridiculous. It’s time to sell and move on.”
And that’s exactly what happened.
You started seeing a big technology sale. Blue chips lasted a while. The non-tech stocks did not suffer immediately.
Then we had the September 11 attacks in 2001. It caused a completely different wave in the bear market to come after it because it shattered trust.
It is relevant today for several reasons. First, we are now in a bubble economy.
Everything is expensive: stocks, bonds, housing, cryptocurrencies … there is a bubble in everything.
This mentality is similar to that of the late 90s / early 2000s, where you saw irrational, insane pricing and simply degenerate gambling in the market.
And today we have the situation in Ukraine. It’s scary. There is always a risk that it will explode into a nuclear war. It can slip and get worse.
Well, that’s equivalent to the post-9/11 world where we did not know which domino was going to fall after that. right?
If the situation we are in today develops into a normal bear market, it will be a combination of what we experienced in 2018 and what we experienced in the technology crash of 2000.
How to access any bear market
Charles: Bear markets are going to happen. Whether it happens this year or in 10 years, we will eventually have a bear market.
This is not the end of the world.
A lot of people make a lot of money in bear markets. Warren Buffett stood out as a robber in the 2008 bear market.
If you get into it with a little cash on hand and you are also more tactical in nature, you can make good money in the bear market. There is nothing to fear.
slowing down: What is the best approach for the incoming smart investor to what could be a bear market or a patch to the market?
Charles: The best advice is: Do not put all your eggs in just a long basket here. If you have some stock that you just hold forever, that’s fine. You do not have to touch them.
but Make sure you keep at least part of your portfolio in short-term strategies. Something that may be a few days to a few weeks or months in the wild.
As we see in all of these charts, nothing comes down straight. There are always rallies at the bear market. It can be quite profitable.
Do not be afraid of the bear. Embrace it and be prepared to go short term.
slowing down: And another key here is that: if you have strategy, if you have rationale, it’s very important Maintain this rationale and strategy. Do not increase it just because the market is moving in one direction or another.
And if you do not have a strategy, it is important to develop one. Would you agree?
Charles: Definitely. The worst thing that can happen to you is that you bought stocks, bought some bonds, but you have no plan.
And so when a bear market hits, you do not know what to do because you did not have a plan when you bought the stock. You’ve never had an exit strategy. You have to get it in.
slowing down: The advantage of strategy is that you know how much you are willing to lose, and you know how much you are willing to gain. You can limit your losses and maximize your profits.
If you do not have a strategy, that’s fine. There we help you. We have Easy strategy That you can stick to it that has yielded big profits over the years.
it’s called Green Zone Fortunes.
We give you this structure you need to be sure to enter market downtimes and be even more confident in market uptimes. [Click here to see how you can join Green Zone Fortunes today.]
So, Charles, where do we go from here?
Charles: I expect the market to continue to be fragmented for a while. This year’s chart looks like a dedicated tooth template. It will stand wild for several weeks. It will fall mostly for a few weeks.
Where are we going from here?
Well, we’re trading in it. We stick to our rules. We enter trading knowing when we are going to exit and we stick to it.
note: We did not skip the bear market that occurred during the financial crisis of the late 2000s. If you want to see what we had to say about it, Click here to view The rest of the Investment with Charles On our youtube channel.
To ensure profits,
Co-Editor, Green Zone Fortunes
Charles Sizemore Is the co – editor of Green Zone Fortunes And specializes in income and retirement issues. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
Don’t Fear the Bear Market! Use Worst Crashes Since 2002 as a Guide Source link Don’t Fear the Bear Market! Use Worst Crashes Since 2002 as a Guide