3 Emails & a Bear Market

Jonathan Mills Patrick -

I suppose it is true, that writers tend to write about the things they read. I’ve been writing a lot about the economy lately. My last two articles cover, a prediction of when mortgage rates will go back down and how our economy is built on convenience.

I subscribe to various resources that feed me information and news about the things I am interested in, namely business and the markets. Today I got three newsletters that talked about the same topic - a bear market. So, I figured I would weigh in on the discussion.

Before I get to that, here are links to the three newsletters I am referring to.

What’s a Bear Market?

So, let’s define a bear market before we go any further. You probably already know, I hope, that a bull market is a positive one (generally speaking), and a bear market refers to a negative market. But, those aren’t the exact definitions. More specifically, a bear market is called when one of the major indices, such as the Dow Jones Industrial Average ($DJIA) or the S & P 500 falls more than 20% after having a run that included a high for a sustained period. A bull market is essentially the opposite.

Ok, now we have that out of the way.

There is no denying that we are in a bear market. Forget the full description. Let’s just focus in on how much the markets are down. The $DJIA is down 16% year-to-date, the S&P is down over 21% YTD, and the Nasdaq is down almost 30%.

With that wonderful news, how should investors behave in a bear market?

Let’s mix things up. Instead of telling you what I think, let me share snippets from the newsletters I referenced earlier. If you appreciate their views I’d encourage you to go check them out (reminder - links are above to each one).

The Financial Samurai (FS) is keeping a keen eye on valuations. According to his analysis, they are back down to the same levels as 21 years ago. So, he appears to be getting a bit more aggressive, i.e. buying into the dip. The question I had when I read his comments was whether or not future valuations have been adjusted, e.g. earnings predictions. Sure enough, FS followed up with the same question. The answer appears to be that analysts have not begun decreasing earning expectations. What does that mean to us? While valuations have come down, that signals to me that there is more room for them to drop. So, if you have been waiting on the bottom I don’t think we are quite there yet.

Genevieve Roch-Decter, who writes the Grit Capital newsletter didn’t linger on the idea of a bear market too long. At least, not in terms of the major indices or Fortune 100 stocks. Other than to say, like other investors, that bear markets are when fortunes are made (not her exact words). Instead, she focused on the drop in cryptocurrency values. Such as Bitcoin is down over 57%!

That leads me to my next point regarding bear markets. I totally get the concept of “it isn’t about timing the market, it's time in the market”. The longer you stay in the market the better your chances of taking advantage of the bull markets that always follow bear markets. Always. But, I’m not a fan of sitting idly by and watching as 20%-57% of my investment value gets erased. I’m much more a fan of being an active investor. This is why when I noticed things starting to turn I liquidated a lot of my positions and took the gains off the table.

When things settle down I’ll jump back into the markets and even certain cryptocurrencies that I completely sold out of. Until, then, I’ll monitor the signs in the economy. Will I time it perfectly and press the gas pedal the moment the light turns green? Nope. But, I won’t be stuck looking at my phone and accidentally sitting through the next light.

By the way, put your phones down people. You can check the price of Luna when you get home safely.

P.S. Don't you love the feature image? I just had to use it! I got it from Canva. I even created a pitch deck today for a client in Canva. Check them out! (not a paid ad or sponsorship)

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