by Michael Batnick, The Irrelevant Investor
Itâs generally accepted that the current bull market began in March of 2009, which means that stocks have been running for 2002 trading days. Iâm not on board with this line of thinking. Forget the first point, that the bull started at the lows in 2009, as opposed to 2013 when the 2007 highs were taken out. Rather, Iâm talking about the idea that this bull has been running for eight straight years. I think itâs been been reset not once, but twice.
From May to October, 2011, the S&P 500 fell 21.6%. On a  closing basis, however, it only fell 19.39%, so an âofficialâ bear market never registered. And while the S&P 500 fell just 15% from the middle of 2015 until early 2016, I believe it absolutely was a bear market. Below are some of the peak-to-trough numbers that support this idea.
- S&P 500 -15% (Median stock -25%, nearly 80% of S&P 500 stocks were below their 200-day moving average.)
- Russell 2000 -27%
- Japanese Stocks -29%
- Dow Jones Transportation Average -32%
- Emerging Market stocks -40%
- Chinese stocks -49%
- Small Cap Biotech -51%
- Oil -76%
- NYSE new 52-week lows were at their highest point since November 2008, which is shown below.
Nobody saw this happening and thought new all-time highs were imminent, and that the complete collapse in oil and the blowout in high-yield credit spreads werenât signaling something much bigger than a temporary hiccup. The stage was set for a deep correction, for the 15% decline in the S&P 500 to fall even further. And then, voila, without any reason and without any notice, stocks stopped going down.
If youâre like me, and like most other human beings, youâre almost always scared of a bear market. If youâre actually in one, you think itâs going to get worse, and if youâre not, youâre waiting for it to arrive. Itâs just the way it works. And this constant fear leads to disastrous returns for many investors. Look at this chart from my friend @econompic.
Oooffff... pic.twitter.com/KRA16pqtzJ
— Jake (@EconomPic) February 15, 2017
Iâm not exaggerating when I say that I feel like every 5% dip is the next bear market. Iâm never like, âoh, this is healthy, stocks will be at new highs in no time.â So what do I do, given that Iâm fearful every time stocks fall? I donât sell everything, I donât even sell anything. I have a portion of my money invested in a simple rules based strategy that will (hopefully) avoid at least part of a bear market. Iâm not expecting it to nail the top, and I am expecting it to register some false positives. I know it wonât âbeatâ the market over the long-term and I donât care. I view it as the cost of protecting myself from myself, and Iâm happy to pay it. Itâs there so that I never interfere with the rest of my invested assets, which Iâm hoping will compound (at whatever rate the market will allow) for the rest of my life.
Stocks are going to crash. This is not a prediction or a forecast, this is a fact. Unfortunately, I donât know when they will and neither does anybody else. But as we recently saw, not every 15% drawdown leads to a 50% meltdown. So you have to put yourself in a position where you can survive the short-term in order to be successful in the long-term.
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