Note From Madeline St.Clair, Assistant Managing Editor: As Alexander Green notes in today’s article, the steady drops we’ve seen in indexes such as the Russell 2000 and the S&P 500 point toward a possible bear market.
The market dropping so rapidly can worry investors. But you know what typically follows a bear market?
An upward-trending bull market!
And you can prepare your portfolio now with what Alex describes as four breakout “buy now” stocks that are destined to lead to massive growth in the years to come…
Alex sat down with longtime Oxford Club Member and journalist Bill O’Reilly to discuss a series of events on the horizon that could lead to more wealth creation in the next two years than in the past two decades combined.
Learn more about Alex’s stunning revelation here.
With the market gyrating madly and tumbling sharply this year, several readers have asked the same question.
“Are we in a bear market?”
My twofold answer may sound contradictory at first: “Yes… and no.”
It all depends on where you look.
A bear market is defined as a drop of 20% or more from the top.
(Just as a bull market is defined as a rise of 20% or more off the bottom.)
The Russell 2000 is down more than 20%. That means we are officially in a bear market for small cap stocks.
The Dow, the Nasdaq and the S&P 500 have merely trended into a correction, defined as a drop of 10% from the high.
However, they may edge into – or, frankly, plunge into – bear market territory in the weeks ahead.
Let’s examine the history of bear markets to get a feel for what may lie ahead.
A Brief History of Bear Markets
Since 1929, the S&P 500 has suffered 14 of them.
(The true number is 15 if you include the 19.8% drop that ended on Christmas Eve 2018.)
The shortest bear market on record was the last one, in the first quarter of 2020. It lasted just 11 days before finding a bottom.
The longest was from March 1937 to April 1942.
And the deepest was the 86% collapse from September 1929 to June 1932.
The average bear market lasted almost 10 months and delivered a 39% loss from the peak.
(The 2020 bear market was over in the blink of an eye, but stocks fell almost that much.)
Because no one can accurately and consistently predict bear markets, investors need to prepare for them in advance.
That doesn’t mean sitting in cash, earning a negative real return on your money.
Or jumping in and out of the market. If you do that, you risk being in during corrections and out during the rallies.
You should prepare for bear markets the way I’ve recommended to readers for more than 20 years:
- Buy only high-quality shares.
- Diversify broadly across several sectors.
- Use a sell discipline to protect your principal and your profits.
- Spread your risk outside the stock market with precious metals, high-grade bonds, high-yield bonds and inflation-adjusted Treasurys.
This won’t keep you completely unscathed in a bear market.
Even the world’s best investors see a temporary – but significant – dent in their portfolios.
However, would-be market timers often talk about bear markets as if they were unmitigated disasters.
They can be, of course, for those who own low-quality shares or even high-quality ones with leverage.
In a fully margined stock portfolio, a 50% decline is a complete wipeout.
There is no recovering from a complete wipeout, aside from starting over.
(That’s a good reason to never ever be fully margined.)
Permabears and market timers with bad memories – the ones who imagine they know how to do it successfully – often give the impression that anyone caught holding stocks at a market bottom is a dupe or a fool.
That’s not so.
They avidly sought out more of them.
While the average punter compares his portfolio’s current value with its highest value – and kicks himself for not magically selling at the top – a smart investor uses it as an opportunity.
How about The Oxford Club’s trailing stop strategy? Doesn’t that mean you will be out of equities at a market bottom?
No, it doesn’t. And in my next column I’ll explain why.
P.S. I wanted to let you know that one of the highlights of 2022 is fast approaching: our Wealth, Wine & Wander Retreat in northern Italy.
This June 11-22, join me and European travel expert Fritz Satran on an epic yet luxurious journey to Milan, Lake Como, Verona and Venice.
We’ll explore this extraordinary region – long recognized as Italy’s capital of finance, fashion and fine living – together, and I’ll share exclusive financial insights along the way.
You don’t want to miss this Italian adventure. You can find more details here.
Click here to watch Alex’s latest video update.