Broker Check

In A Bear Market: Who or What or Should I Listen To?

September 27, 2022

Obviously, while working out of town a great deal has gone on in the global markets over the last couple of weeks, but not necessarily anything that was really unexpected. We have been back and forth within the confines of a bear market (normally considered -20% or more decline).

It is not unusual for market rallies to occur within a bear market and it is exceedingly difficult to determine whether what is occurring is what is known as a “dead cat bounce” or a true rally off the bottom into a new bull market. That said; let me point out that market reversals generally occur well before any specific news surfaces about any sort of important economic change(s). More to the point, if you miss the (usual) explosive move off a market bottom, you cost yourself substantially in terms of returns over the next several years. 

Given the economic, political and national security issues abounding, this has the appearances more of a 1970’s (’73  ’74) style bear market – but then if I really knew what was likely to occur would I be writing this blog?

For that matter, would anyone who really knew what was going to happen, what are the best stocks or investments to be made now – if any or when to get into or out of the market, why would they be offering this advice for free (via the media) or for a few bucks for a subscription to their newsletters. In my experience over decades, the only thing that works over time is to diversify among global asset classes, systematically rebalance, stay disciplined regardless of the front page news and recognize the fact that neither good times nor bad last forever.

Speaking of who really knows what – if anything, Marty Zweig, whom I’ve recommended to readers before, had an interesting column on the subject in the Wall Street Journal.


This coming weekend account statements will start going out to investors.

I'm normally uncertain about nearly everything in financial markets, but a few things seem like sure things right now. After three straight quarters in a row of losses for stocks, bonds and just about everything else, financial marketers have a full payload of propaganda to carpet-bomb investors with.

Here are a few pitches I'm almost sure you're going to hear:

"It's a stock picker's market." With stocks no longer marching upward in lockstep, rising "dispersion" creates a wider gap between winning and losing investments. That enables stock pickers to declare that if only you'd invested with someone who knew how to pick the winners, you could have done much better than average. What they fail to mention is that they don't usually know how to pick the winners.

"Buy and hold is dead." Market timers and "tactical" financial advisers spring up after every tumble in stocks or bonds to declare that "buy and hold is dead."
     You should ask: What, then, is alive?
     Is it worth paying subscription fees, annual expenses, brokerage costs and short-term capital-gains taxes to try dodging market declines?
     In theory, the answer is yes, if you could find someone who is usually right about what the markets are about to do.
     In practice, the answer is no, because anyone who could do that wouldn't let you in on the secret for a price you could afford. As I wrote years ago:
     In my opinion, individuals who almost never trade stand a very good chance of outperforming the professionals who almost never sit still. The longer the time horizon over which performance is measured, the more likely this is to hold true.

"Alternative investments smooth out volatility." Alternative investments, you will read nearly everywhere, offer low correlation to publicly traded stocks and bonds — and even lower volatility. (I got more than 300,000 hits when I goggled the words "alternative investments" + "smooth" or "smoother.")
     That's a fallacy, if not a farce.
     Such assets as hedge funds, crowdfunding, private equity often report returns monthly, quarterly or even semi-annually or annually.
     Meanwhile, publicly traded stocks and bonds are marked to market every day.
      Naturally, the more often you see a price change, the more volatile an asset will appear to be. (Imagine how nervous you would become about what your home is worth if you could view its market value changing every few seconds.) The less often alternative investments report their prices, the less volatile they will seem. That doesn't necessarily mean they are less volatile….”

Don’t let the carnival barkers convince you they know anything – other than how to get their hands on your money and don’t let the doom and gloom soothsayers convince you the end of the world is neigh. We’ve been through these periods before, we’re in one now and we will definitely be in more than one again in the unknown future.

I recognize how difficult it is for many – particularly investors to live with uncertainty. However, since over the last few years we’ve had the word “science” bandied about as an absolute, perhaps the advice from Nobel Laureate physicist Richard Feynman may help to put things into a more realistic perspective:

“…...what we call scientific knowledge today is a body of statements of varying degrees of certainty. Some of them are mostly unsure; some of them are nearly sure; but none is absolutely certain. Scientists are used to this. We know that it is consistent to be able to live and not know. Some people say, "How can you live without knowing?" I do not know what they mean. I always live without knowing. That is easy. How you get to know is what I want to know.
—Richard Feynman, The Uncertainty of Science