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Bear Markets

Many people assume successful investing comes from picking winners. The way you win is by producing alpha and outsmarting the market. There is an infinitesimal percentage of the population that can do this consistently over the long haul.

For the rest of us, success looks more like survival. Those investors who can survive their own mistakes, avoid blowing themselves up and generally stick to a reasonable investment process have a higher probability of success in the markets. Survival is even more important during bear markets. In bear markets, investors start pressing, doing more, trying to time the market and opening themselves up to avoidable risks.

In every bear market, some asset class, strategy or investment doesn’t behave like it’s supposed to. Diversification itself often gets called into question. In 2008 crisis it was housing. No one really thought housing could crash on a national basis. It was quite rare but stuff that never happens seems to happen all the time when it comes to the markets.

In every bare market, FOMO (fear of missing out) turns into TGINIT (thank God I’m not in that). Remember all the if you would have put $10,000 into [investment with a massive return] you would be a millionaire stories from 2020 and early- 2021. Not quite as many of those FOMO tales these days. Let’s try one just because it’s worth pointing out the other side of concentration. If you would have put $10,000 in a popular exercise bike company at the start of 2021, you would now have just over $1,000.

In every bear market, investors wish they held more cash. Just like most investors wish they were fully invested or utilizing leverage during a bull market. This is just one of the reasons I’m such a huge proponent of balance in tour investment strategy- just wait long enough and most of the feelings you have about the amount of risk in your portfolio will change based on the market environment. Then it feels like it is going to last forever. Until it doesn’t.

Midterm years can be quite volatile with the average year down 17.1% peak to trough, so a bear market during this year isn’t out of the ordinary. Knowing that helps put this year’s drop of 18.1% in perspective. The good news is a year off those lows, the S&P 500 has gained 32.0% on average, something most investors would likely take right about now.

The S&P 500 is down six weeks in a row currently, the longest losing streak since 2011. It hasn’t been down seven in a row since 2001. What stands out about this data is if the six-week losing streak is down more than 10% (like this one was), then the future returns can be quite strong. Up a median of 9.9% six months later and 29.2% a year later.

Posted by Ryan Detrick, CMT. “Six Things to Know about Bear Markets.” LPL Financial Research, 19 May 2022,

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for. Any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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