Investment Mistakes in a Bear Market

Successful investing is not magic, just keep things simple and maybe follow few investing and money rules of thumb and you’ll be fine in the long run.

Investment Mistakes in a Bear Market

1.  Selling without any logical reasoning or attention to long-term goals.  Often they all miss the fact that they are selling at the bottom to only repurchase them back at the top. Stop selling without a reason, only sell if the fundamentals have changed for the long term or the investment does not fit in your plan, not because everyone else is selling in the market.

2.  The only worse thing one can do than selling out in a bear market is stop investing during the bear market.  Would you stop shopping if retail prices dropped 30%? No.   When you stop investing during a bear market you will miss out on many undervalued investment opportunities which can have great returns in the long run.

3.  Some investors start to look at alternative investments, (e.g. gold) because they believe somehow these will perform better than the equity markets.  Although alternative investments have their place in a portfolio the excessive focus during bear markets makes them dangerous.

4.  Just stop wasting your time and money trying to time the markets. Investors are more likely to time the markets during a bear market, as there are often big swings, which are seen as opportunities by investors, this strategy will only hurt your portfolio.

I know bear markets hurt, but you trying to “improve” things will only make things worse.  

• What were your investment mistakes during this bear market? 
• What have you learned from them?  
• Do you know anyone who made these mistakes?

Falling Prices can be a double-edged sword

Risk is more often in the price you pay than the stock itself.

Markets have fallen time and again because of some political or economic announcement.  Similarly, individual stocks and sectors often fall on weaker than expected earnings or unforeseen events.

During market sell-offs, the rapid decline of prices brought bargain issues that an investor could buy for a lot less than their pre-collapsed prices.

As others are selling in reaction to news reports, you can load up with value opportunities that can benefit from the subsequent price recoveries.  It is important to understand that the prices of solid companies with strong balance sheets and earnings usually recover.  If the fundamentals are sound, they always have and they always will.

From 1932 to today, the studies confirm that when bad things happen to good companies, they recover and usually quite nicely in a reasonable amount of time.  It has also been shown that high performance seems to beget lower returns, and low performance leads to higher returns in nearly all markets.  Today's worst stocks become tomorrow's best stocks and vice-versa.



Catching a falling knife

There is danger in trying to catch a falling knife, but even when stocks dropped 60% in one year, and bankruptcy and failure rates jumped fourfold, opportunities abounded.

Remember that one of the chief tenets of the value investing approach is to always maintain a margin of safety.  You can lessen the chances of buying a failure and increase your portfolio performance if you stick to the principle of margin of safety.  Don't try to catch an overpriced, cheaply made falling knife.

When stock prices fell after the bear markets, many investors were decimated.  On the other hand, value investor like Warren Buffett, was thrilled with all the bargains he found as a result of the collapse and said now was the time to invest in stocks and get rich.  The average investor and many professionals, having suffered through a bear market, wanted nothing to do with stocks and missed out on the chance to load up at these low prices.

You just had to catch the babies being thrown out with the bathwater.


Summary:

1.  Buying stocks that have fallen in price and yet still offer a margin of safety has resulted in successful investments.

2.  Although many find it difficult to leave their comfort zone and buy stocks that have fallen, those of us buying cheap stock realise that the bargains are found in the sales flyers and the new low lists, not in the highfliers (popular stocks) and the new high lists.





Examples:

Bear market of 1973 to 1975 Crash of the Nifty Fifty
The stock prices fell an average some 60% and many investors were decimated.  Warren Buffett in an interview with Forbes in November 1, 1974, described himself as feeling like an "oversexed guy in a harem".


1980s
Some of the large public utilities in US overcommit to nuclear power with disastrous financial results and fell into financial difficulty.  Many of them even had to file for bankruptcy to work out their difficulties.  After the Three Mile Island accident, the world interest in US nuclear power practically ground to a halt.  Few portfolio managers or individuals wanted to invest in these companies.  But those brave few who invested in Public Service New Hampshire, Gulf States Utilities, and New Mexico Power ended up with enormous returns over the balance of the decade as the  companies worked out their problems and returned to profitability.


Late 1980s and early 1990s
The fall of Drexel Burnham, the junk bond powerhouse and the implosion of the high-yield debt market, along with collapsing real estate prices, caused what is now know as the savings and loan crisis.  This crisis spread from the smaller S&Ls to the largest banks in the country.  Venerable institutions such as Bank of America and Chase Manhattan Bank fell to prices at or below their book value and had price-to-earnings ratios in the single digits.  Wells Fargo was hit particularly hard because it appeared to have significant exposure to a rapidly declining California real estate market.  Investors who did their homework and invested in banks during this time earned enormous returns over the decade that followed as the industry went through a merger boom that generously rewarded shareholders.  You just had to catch the babies being thrown out with the bathwater.


1992
After Bill Clinton took office, he appointed his wife Hillary to head a committee on health care reform that proposed a drastic program that would have dramatically, curtailed the profits of the pharmaceutical industry.  All the leading drug company stocks declined sharply.  Companies like Johnson & Johnson, fell to a level of just 12 times earnings.  Most investors shied away from the industry.  Investors who saw the opportunity in Johnson & Johnson realised that the stock was selling for the equivalent value of the consumer products side (Band-Aids and Tylenol) of the business.  You got the prescription pharmaceutical part of J&J for free.  Once Hillary care was a ded issue, the stock of J&J and the other pharmaceutical companies brought outsized gains to investors willing to take the plunge.


9/11 disaster
After the disaster of 9/11, American Express was viewed as being too dependent on air trael, and its shares fell from the ppprevious year's high of $55 to as low as $25.  Although American Express may have been facing some travel-related struggles, it was an enormously profitable company that sold at just 12 times earnings.  Investors who realized that companies of this quality are rarely this cheap and that the income stream from the credit card business offered a margin of safety have been amply rewarded in the years since.  American Express is another example of how catching the right falling knife can sharpen returns with high-quality stock at low prices.

Investing planning in the midst of Covid-19 pandemic

POSTED ON APRIL 18, 2020, SATURDAY



WITH history as our guide, equity markets always recover after panic selling, especially when it is triggered by events such as a war, a catastrophic event or a pandemic. Therefore, as far as investing planning is concerned, the strategy is to stay invested if you are investing for a medium or long term financial goal.


Financial Times published an article earlier this year titled “Investors look to history for clues on market impact of coronavirus” and quoted the chief global market strategist of an international investment firm, “Investors are looking back at previous epidemics in an effort to anticipate how badly the coronavirus outbreak could affect already shaky global markets. It is important that we don’t panic but really look to history as a guide.”

It also reported that JP Morgan has assessed the market impact of past outbreaks, notably

• SARS (November 2002 to July 2003), 
• swine flu (March 2009 to August 2010), 
• Ebola (December 2013 to June 2016) and 
• the Zika virus (March 2015 to November 2016).

In each of those cases, a sharp initial stock market decline quickly gave way to a recovery. Head of global and European equity strategy at JP Morgan in London, remarked, “The more equities fell initially, the more they subsequently rebounded. These episodes did not lead to a prolonged period of selling and were a buying opportunity within weeks.”

Of course, we gather that this coronavirus called Covid-19, resembles SARS, with about 80 per cent of its genetic code similar to SARS. It spreads pretty much similar ways, and with similar symptoms. But SARS seems to have a higher fatality rates.

At time of writing, Covid-19 pandemic is still unfolding and in some countries, its spreading has not peaked. Scientists are still trying to understand this new virus and there is a certain degree of uncertainty about how and when this pandemic will end.



Stay invested

Try not to switch out to lower risk/volatility fund if your investment time horizon is medium (three to five years) to long term.

I have observed this phenomenon of investors reacting emotionally to market panic, and switching to low risk funds when the 2008 financial crisis hit.

Smart Investor magazine in its January 2009 edition, carried an article titled: “Investors Seek Low Risk Option” with the quote: “During uncertain times, investors tend to flock towards cash or invest in structured, capital guaranteed funds, and in some cases money market funds” and also “Out of 70 funds launched in year 2008, the bulk were capital protected funds.”


In 2008 and 2009, many fund houses launched low risk or even capital guaranteed funds to suit the risk-averse appetite of investors at that time.

The consequence? Investors who reacted emotionally and switched to or got locked in to low risked funds actually missed the boat when market rebounded eventually.

Investors are allowed to be worried about volatility, but it can be managed intelligently by using the averaging strategy, either using cost averaging or value averaging.



Review and restructure your unit trust portfolio

Now the crucial thing for you to do is to engage a licensed financial adviser to conduct a portfolio review on all the existing unit trust funds you have purchased, both cash or using your EPF.

This is to see if your portfolio is damaged or is still relevant in view of the present market conditions versus your investing objectives. At the same time, it is essential to re-structure your portfolio so that you are in a better position to take advantage of the rebound later.

Even though market analysts can’t agree whether the market recovery will be a V-shape, U-shaped or even L-shaped scenario, by re-structuring your fund portfolio, you can weight it more heavily on sectors, countries or regions which are more lightly to recover from the pandemic.

Countries which are aggressive on testing and with prudent Covid-19 strategy in place are more likely to recover faster.

Not all the sectors of the economy will be impacted negatively in a pandemic situation. In actual fact, certain sectors of the economy will do relatively well.

The other factor is of course how quickly a vaccine can be available to end the pandemic.

Governments of many countries in the world now have actually learnt well on how to handle the market panic caused by Covid-19 after the experience accumulated after the 2008 financial crisis.

We are seeing both monetary and fiscal policy tools being rolled out aggressively by many governments at the same time when pandemic control measures are being announced.

The knowledge in virology now is definitely more advanced and authorities in various countries are acting more quickly this time around compared to 17 years ago when SARS erupted. And along the way, scientists have acquired more knowledge about ebola, MERS and other viruses that emerged since the time of SARS in 2003.

You can also see countries and citizens who had the previous SARS experience doing much better than those countries who have not learnt how to handle a SARS-like pandemic.

Meanwhile, sophisticated and institutional investors are actually quietly picking oversold and undervalued stocks in time of panic selling now.

Stay invested. Be smart. Dollar cost or value average to manage the downside risk. Market volatility will be there as the ugly numbers are not out yet.



Lee Khee Chuan ChFC, CLU, FLMI, B.A..  Lee is a chartered financial consultant, chartered life underwriter, fellow, life management institute and a CMSRL license holder, franchisee of Rockwills and Islamic estate planner with A-Salihin Trustee Bhd.


https://www.theborneopost.com/2020/04/18/investing-planning-in-the-midst-of-covid-19-pandemic/

15 Very Safe Blue Chips To Buy During This Bear Market

Mar. 16, 2020


Summary

• The bear market so many have long feared is here. Stocks didn't just enter a bear market last week, they crashed into one with gusto.

• COVID-19 panic, combined with worst oil crash since the Financial Crisis, have combined to create a perfect storm of fear, literally the second highest in 30 years.

• However, regardless of when this bear market ends (and it surely will), great companies are always on sale, BUT especially when the market is panicking.

• CFR, UMBF, ADM, CAT, GD, PH, CNI, GWW, MDT, SWK, TJX, ROST, CB, ADP and APD are 15 very safe blue chips who have collectively delivered 15% CAGR returns over the last 23 years.

• From today's 25% undervaluation they could deliver about 17% CAGR long-term returns. Just don't forget to always use the right asset allocation for your needs, because when the bears roar on Wall Street, almost no stock is spared short-term pain.

1.  Why are global markets melting down over this?

Because while the COVID-19 Pandemic is indeed a global health crisis, what the market is worried about is the effect on earnings and the economy, both in the US and around the world.

US supply chains have been disrupted, with The Harvard Business Review estimating the end of March will represent peak supply chain disruption.

China's new cases have fallen below 40 per day over the last week (just 18 yesterday) and it's begun lifting travel restrictions, even in Wuhan where all this began.

By Q3 Goldman expects supply chains to be back up and running. By Q4 all COVID-19 effects are expected to reverse, resulting in 4+% GDP growth in 2020.


2.  Does that mean the market is 100% wrong to dive into a bear market? 

No, because the combined effects of the pandemic + oil crash are expected to hurt earnings significantly.





3.  Goldman expects S&P 500 earnings to fall 5% this year due to the pandemic. 

The big hit will come in Q2 and Q3, and then a strong recovery in Q4.

Goldman is forecasting a 27% bear market, that would be relatively short and mild. It expects a market bottom by the middle of the year and then a 31% rally to close the year about -2% for stocks.

That's not necessarily an outlandish forecast, given that the average non-recessionary bear market since 1945 has been a 24% decline.

Goldman Sachs just put out a new research note which states

• it expects -5% EPS growth for the S&P 500 this year (about $156.75)
• it expects the S&P 500 to bottom at 2,450 in the middle of the year
• 2450 on S&P 500 represents a 15% decline from today's levels
• it represents a forward PE of 15.6 vs 16.3 25-year average (about 4% undervalued)

Goldman expects earnings growth to "collapse" in the second and third quarters of 2020 before rebounding through the end of the year and into 2021. The S&P 500 will bottom out at 2,450 in the middle of the year, roughly 15% lower than its current level, the analysts projected. The fresh low will give way to a fourth-quarter surge and push the benchmark index to 3,200 by the end of 2020, they added." - Business Insider



4.  Of course, the big question is whether or not we get a recession this year.

Jeff Miller and Moody's both estimate about 50% probability of a short and mild recession this year.

For next year the bond market/Cleveland Fed/Haver analytics model estimate about 21% chance of recession.

The bond market is potentially so nonchalant about next year's recession risk because it's now pricing in a near 100% probability of a rate cut to zero on March 19th (Fed meetings last two days).

Moody's estimates that each 25 bp rate cut stimulates economic growth by 0.1% to 0.15% within a year. The Fed will have made the equivalent of 7 rate cuts within two weeks, potential boosting growth by as much as 1% for 2021.

The Fed is also injecting at least $1.5 trillion into the repo market and resuming QE, all to ensure ample liquidity to prevent a repeat of the financial crisis.

So this is the good news. The bad news is that until now and the end of the year we have to deal with the second-highest market volatility in modern history.




5.  Why are some people so worried that this historically mild bear market might become a raging inferno of paper wealth destruction?


Because low oil prices could trigger a wave of bankruptcies in that sector among highly leveraged junk bond rated companies. You can see that until just recently, investment-grade bond yields have been tracking 10-year yields lower. Junk bond yields have been rising throughout this crisis, as bond investors demand extremely high risk-premiums to buy high-risk bonds.

COVID-19 on its own is likely only capable of generating a short and mild recession, similar to the Gulf War oil shock recession of 1990, which lasted eight months and caused a 20% bear market.

BUT the potential is there for cascading loan defaults to trigger significant financial losses for bond investors, banks, and anyone holding high-yield debt.




6.  The Fed's Emergency Rate Cut

The Fed's emergency rate cut (the first since 2008) was NOT meant to cause stocks to go up, as so many think. Rather it was meant to reduce short-term borrowing costs, which are mostly based on LIBOR, which you can see tracks the Fed Funds rate relatively closely.

Along with the Fed's repo short-term and QE long-term bond-buying, which is designed to ensure sufficient liquidity in the financial system, the Fed is just trying to grease the wheels of the financial system.

The goal is to either

• ameliorate the effects of the economic slowdown, or,
• if we get a recession, maximize the chances of it being brief, and a recovery being strong and beginning as soon as possible.

7.  Bargains galore for blue chip dividend investors

So how long with the COVID-19 pandemic and bear market last?

In the meantime, there are bargains galore for blue chip dividend investors to cash in on.

There has always been volatility in the stock market and there always will be. That’s guaranteed as long as humans are the ones making buy and sell decisions.

In the short-term, the reasons for market sell-offs feel like they matter a lot. In the long-term, investors tend to forget the specific reasons stocks fell in the past.

In the short-term, market downturns feel like they will never end. In the long-term, all corrections look like buying opportunities.

Regardless of how long this correction lasts, to win in the stock market over the long haul you must be willing to lose over the short-term." -Ben Carlson (emphasis added)

8.  15 Very Safe Blue Chips To Consider During This Bear Market

Dividends are a function of share count, not price.

However, given the rapidly changing nature of the COVID-19 pandemic as well as significant economic/earnings uncertainty, for this article, I wanted to highlight companies with

9/11 blue chip quality
5/5 dividend safety
trading at fair value or better

These 15 blue chips are

• Cullen/Frost Bankers (CFR)
• UMB Financial (UMBF)
• Archer-Daniels-Midland (ADM)
• Caterpillar (CAT)
• General Dynamics (GD)
• Parker-Hannifin (PH)
• Canadian National Railway (CNI)
• W.W. Grainger (GWW)
• Medtronic (MDT)
• Stanley Black & Decker (SWK)
• TJX Companies (TJX)
• Ross Stores (ROST)
• Chubb Limited (CB)
• Automatic Data Processing (ADP)
• Air Products & Chemicals (APD)

Fundamental Stats On These 15 Companies

• average quality: 9.9/11 blue chip quality vs. 9.7 average dividend aristocrat and 7.0 average S&P 500 company
• average dividend safety: 5/5 very safe vs 4.7 average aristocrat and 3.0 S&P 500 average
• average yield: 2.9% vs. 2.3% S&P 500 and 2.7% most dividend growth ETFs
• average valuation: 23% undervalued vs fairly valued S&P 500
• average dividend growth streak: 35.7= dividend aristocrat/champion
• average 5-year dividend growth rate: 10.3% CAGR
• average analyst long-term growth consensus: 9.0% CAGR vs. 6.3% S&P since 2000
• average forward PE ratio: 13.6 vs 13.7 S&P 500 bottom on December 24th, 2018
• average PEG ratio: 1.51 vs. 1.69 S&P 500
• average return on capital: 58% = 84th industry percentile (very high-quality by Greenblatt's definition)
• average 13-year median ROC: 65% (relative stable moats/quality)
• average 5-year ROC trend: +6% CAGR (relative stable moats/quality )
• average credit rating: A (investment grade, very-high quality)
• average annual volatility: 24% vs. 15% S&P 500, 26% Master List Average, 22% average aristocrat
• average market cap: $38 billion
• average 5-year total return potential: 2.9% yield + 9.0% growth +5.4% CAGR valuation boost = 17.3% CAGR (12% to 22% CAGR with 25% margin of error)

Collectively these this is a group of dividend aristocrats, with a nearly 36-year dividend growth streak, A-rated balance sheet and returns on capital that are in the top 16% of their respective industries and growing over time.

In other words, just the kind of sleep well at night blue chips you can safely buy when bear market choppy waters are upsetting most investors.

9.  Risk management is the most important part of long-term investing success.

These are the risk management rules I use for all the portfolios I manage including my own. They are merely guidelines to start thinking about the best way to build a sleep well at night bunker portfolio for all market conditions, including bear markets such as this one.

10.  Consider Nibbling Today

Bottom Line: No One Knows Where The Bottom Of Any Bear Market Is So Consider Nibbling On These 15 Safe Blue Chips Today

Here's Ritholtz Wealth Management's CEO, Joshua Brown with what he's telling his clients about market timing right now.

Why don’t we just sell everything and wait this out? Get back in when the dust settles?”

The great answer is that you won’t know when the dust settles. There’s no airplane writing the “all clear” in the sky above your neighborhood. And when the dust settles, do you think stocks will be at their lows? Or will they have already rallied furiously, in anticipation of this? Let me give you an example.

Today is March 9th. Precisely eleven years ago today, in 2009, the stock market stopped going down. There was no reason. The dust had settled, without fanfare or any sort of official announcement. If you had polled people that day, or week or even month, most would not have agreed that we had seen the worst.

The economic headlines were not improving. But there it was. And by June 1st, less than 3 months later, the stock market had climbed 41% from that March low. And even with that having happened, the majority of participants still weren’t clear that the dust had fully settled. That we had, in fact, seen the worst.

There were still people calling us 3, 5 and 7 years later who had gone to cash and still hadn’t gotten back into stocks. They missed a new record-high a few years later and hundreds of percentage points in compounding on their assets." - Joshua Brown, CEO Ritholtz Wealth Management (emphasis added)

Don't get me wrong, I don't know where the bottom of this bear market is, given the factors that are hurting the global economy and corporate earnings right now.

All I do know is that great companies are on sale. I also know that the market, when it becomes excessively fearful becomes very wrong about the intrinsic value of companies.

The prices you see on your screen today are the transitory manic depressive opinions of the often mentally unstable Mr. Market. (If I have offended Mr. Market, my apologies). Mr. Market did not carefully value your companies today and decided that they are now worth less. No, he woke up in a grumpy mood and indiscriminately marked them down as if they were overripe bananas at the grocery store. (You cannot have enough metaphors here.)

The stock prices on your screen say nothing about what these companies are worth. Nothing at all. But that is all that is going to matter in the long run. I promise you one thing: The value of your companies doesn’t change 8% a day, day after day."- Vitaliy Katsenelson, CEO of asset management firm IMA (emphasis added)

CFR, UMBF, ADM, CAT, GD, PH, CNI, GWW, MDT, SWK, TJX, ROST, CB, ADP, and APD represent blue chip quality dividend growth stocks with 5/5 very safe dividends that have bright futures ahead of them.

They might not necessarily have a great 2020, but good long-term investing requires looking beyond one or two bad years and looking at the likeliest long-term growth potential.

11.  Luck is when preparation meets Opportunity

(Source: AZ Quotes)

By no means am I saying anyone should go "all in" to any stock all at once. That's market timing, and numerous articles I've shown why that doesn't work for regular investors.

I never buy at the bottom and I always sell too soon." ~ Baron Nathan Rothschild

I'm a big advocate of buying in stages, nibbling rather than chomping on quality companies at reasonable to attractive valuations.

Where once many of the world's best dividend stocks were overvalued, today you can buy the kind of quality bargains only available in a market panic.

No one rings a bell at the top or the bottom. And 80% of the market's best days come within two weeks of its worst.

According to Bank of America, 99.6% of long-term returns over the last 90 years have come from just the 90 best market days.

So as Buffett famously said, "be greedy when others are fearful" because some of these fantastic quality bargains won't last long.

Whether the market bottoms tomorrow, in mid-2020 or the end of the year, I'm confident that anyone buying these companies today, as part of a diversified, and prudently risk-managed portfolio, will be very pleased with the results in 5+ years.

https://seekingalpha.com/article/4332110-15-safe-blue-chips-to-buy-during-this-bear-market

The Three Fundamental Truths of a Bear Market

The three fundamental truths of a bear market.

1.) A bear market is only bad if you plan on selling your stock or need your money immediately.
2.) Falling stock prices and depressed markets are the friends of the long-term investor.
3.) You must learn to separate the stock price from the underlying business. They have very little to do with each other over the short-term.



So what do I do with my money in a bear market?

The first thing you need to do is to look for companies and funds that are going to be fine ten or twenty years down the road. If the market crashed tomorrow and caused Gillette's stock price to fall 30%, people are still going to buy razors. The basics of the business haven't changed.

When you understand this, you will see falling stock markets like a clearance sale at your favorite furniture store... load up on it while you can, because before long, the prices will go back up to normal levels.

What is a bear market and what causes them?

By definition, a bear market is when the stock market falls for a prolonged period of time, usually by twenty percent or more. It is the opposite of a bull market. This sharp decline in stock prices is normally due to a decrease in corporate profits, or a correction of overvaluation [i.e., stocks were way too expensive and needed to fall to more reasonable levels]. Investors who are scared by these lower earnings or lofty valuations sell their stock - causing the price to drop. This causes other investors to worry about losing the money they've invested, so they sell as well... and the vicious cycle begins.

One of the best examples of such an unfriendly market is the 1970's, when stocks went sideways for well over a decade. Experiences such as these are generally what scare would-be investors away from investing [which, ironically, keeps the bear market alive... since there are no buyers purchasing investments, the selling continues.]


How do they affect my investments?

Generally, a bear market will cause the securities you already own to become undervalued. The decline in their value may be sudden, or it may be prolonged over the course of time, but the end result is the same: What you already own is worth less [according to the market.]


This leads to two fundamental truths:
1.) A bear market is only bad if you plan on selling your stock or need your money immediately.
2.) Falling stock prices and depressed markets are the friends of the long-term investor.

In other words, if you invest with the intent to hold your investments for years down the road, a bear market is a great opportunity to buy. [It always amazes me that the "experts" advocate selling after the market has fallen. The time to sell was before your stocks lost value. If they know everything about your money, why they didn't warn you the crash was coming in the first place?]


So what do I do with my money in a bear market?

The first thing you need to do is to look for companies and funds that are going to be fine ten or twenty years down the road. If the market crashed tomorrow and caused Gillette's stock price to fall 30%, people are still going to buy razors. The basics of the business haven't changed.


This proves the third fundamental truth of the market:
3.) You must learn to separate the stock price from the underlying business. They have very little to do with each other over the short-term.
When you understand this, you will see falling stock markets like a clearance sale at your favorite furniture store... load up on it while you can, because before long, the prices will go back up to normal levels.




Additional notes:

Fear Index

What are you doing with your money?

-  I'm buying stocks while they are cheap.
-  I'm staying put in the market for the long-term.
-  I'm taking some money out of stocks. I don't want to risk everything.
-  I'm selling all stocks and moving to CDs.
-  I'm in a panic. Where's the nearest mattress?

Be prepared for Declining Markets

Certain experiences shape the investor and his/her investing philosophies, and nothing better can happen to an investor than to buy a stock that declines.

Your measure as an investor is how your philosophies hold up during turbulent times.

The stock market is officially in a correction... here's what usually happens next

The stock market is officially in a correction... here's what usually happens next

"The average bull market 'correction' is 13 percent over four months and takes just four months to recover," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said in a Jan. 29 report.

But the pain lasts for 22 months on average if the S&P falls at least 20 percent from its record high — past 2,298 — into bear market territory, the report said. The average decline is 30 percent for bear markets.

The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years.


The S&P 500 fell officially into correction territory on Thursday, down more than 10 percent from its record reached in January.

If this is just a run-of-the-mill correction, then we are looking at another four months of pain, history shows. If the losses deepen into a bear market (down 20 percent), then it could be 22 months before we revisit these highs, history shows.

"The average bull market 'correction' is 13 percent over four months and takes just four months to recover," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said in a Jan. 29 report.



Source: Goldman Sachs

But the pain lasts nearly two years on average if the S&P falls at least 20 percent from its record high — past 2,298 — into bear market territory, the report said. The average decline in a bear market is 30 percent, according to Goldman.



The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years

Stocks remain in an upward bull market trend, the second longest in history.

S&P 500 corrections and bear markets since WWI



Source: Goldman Sachs

Evelyn Cheng CNBC



https://www.cnbc.com/2018/02/08/the-stock-market-is-officially-in-a-correction--heres-what-usually-happens-next.html?__source=Facebook%7Cmain

Stay Rational in the Downturn

By Emil Lee 
January 22, 2008 

There's been a bloodbath in the markets lately. Investors, banks, and investment banks are all trying to stay afloat in a sea of red ink.

Forgetting about the happier, more bullish times is easy to do when circumstances turn against us, but we must do our best to stay calm. To keep your cool as a rational investor, here are a few wise words to remember when dealing with the stock market's ups and downs.

It happens, even to the best investorsYou can easily feel isolated when you're handed huge losses, but even the best investors falter.

Charlie Munger, now vice chairman of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , ran an investment partnership called Wheeler, Munger & Co. back in the '60s and '70s. Munger's partnership performed admirably and trounced the indexes. However, in the brutal bear markets of 1973 and 1974, it recorded back-to-back annual losses of 31.9% and 31.5%, compared with losses of 13.1% and 23.1% for the Dow.

Wheeler, Munger & Co. persevered. It returned 73.2% in 1975, and Munger went on to become a billionaire with Berkshire Hathaway. I'm skipping the interim details, but the moral of the story is: Just because you're sitting on a big loss doesn't make you a horrible investor.

Some losses are temporaryAn article in the latest issue of Barron's noted that private-equity firm Warburg Pincus remains committed to its capital infusion of $500 million into besieged bond insurer MBIA (NYSE: MBI  ) , even though its cost basis will be about $31 per share, compared with the current trading price of around $11.43 per share.

In the article, a Warburg spokesperson pointed out that the firm's early '90s investment in Mellon Bank -- now part of the Bank of New York Mellon (NYSE: BK  ) -- also rang up a sharp loss before it turned into a huge gain.

Time will tell whether Warburg's patience will be rewarded. It's worth noting that successful firms and investors draw a sharp distinction between temporary and permanent losses of capital.

Bill Ackman, a prominent bear on the other side of MBIA trade, feels the same way about differentiating between temporary and permanent losses. His large stake in Target (NYSE:TGT  ) plummeted as investors dumped recession-prone stocks.

However, Ackman pegs Target's worth, given its valuable underlying real estate, credit card receivables, and strong cash flows, at $120 per share, and on Bloomberg.com he said that Target "is a case actually where I think a mark-to-market loss is not a real loss." In other words, as long as an investment thesis remains intact, Ackman doesn't consider a stock that's down because of short-term market movements is a permanent loss.

Look for buying opportunitiesIf the stock market will make us suffer huge losses, the least we can do is take advantage of the great prices. If you've ever wondered how Warren Buffett does what he does, one crucial factor is when he does it.

During the banking crisis of the early '90s, when everyone else was running for the exits, investors such as Buffett and Prince Alwaleed made fortunes buying huge stakes in ailing banks, including Wells Fargo (NYSE: WFC  ) and Citigroup (NYSE: C  ) . When everyone else was dumping stock, the smart guys were looking to buy.

Foolish thoughtsKeeping your composure isn't easy when the stock market plummets. However, Fools need to stay rational and composed to make the most of a temporarily bad situation.

http://www.fool.com/investing/value/2008/01/22/stay-rational-in-the-downturn.aspx

Comment:  Warren Buffett "timed" his buying of the market during the Global Financial Crisis.  He asked the public to buy in October 2008 when the Lehman collapsed.

The Danger of getting out of stocks during the Bear Market.

Reactions to turbulent and bear markets vary by investor. 

Some are unfazed by large drops in stock prices, and even view them as buying opportunities (“Buffett-like investors”). 

Others curtail their stock holdings when the market incurs a steep drop, but don’t completely pull out of stocks (“nervous investors”). 

There also are many who get out of stocks completely during a bear market (“panic investors”) out of fear of incurring further losses.




Given wide variances in how each investor reacts to bear markets— the aggregate data does imply, however, that Buffett-like investors are likely a comparatively small group. More people probably fall into the nervous and panic investor groups. This is not surprising, given the human inclination to be risk-averse. 

As Daniel Kahneman and Amos Tversky demonstrated with “prospect theory,” we feel the pain of losses much more than we derive pleasure from gains. 

Compounding matters, we humans commonly engage in hyperbolic discounting, which means we place greater value on rewards received sooner rather than later. 

When the market falls and stocks are sold, we see the immediate value of avoiding further losses. 

What isn’t considered are the potential future gains forfeited by not continuing to stick with stocks or, better yet, by rebalancing and allocating more money into stocks.

Rebalancing: A Better Method

If panicking is a big problem, a strategy that helps an investor to maintain a constant exposure to stocks should logically produce benefits. While some may view the best advice as simply being “don’t panic and stay allocated to stocks,” such guidance only works well for Buffett-like investors. All other investors need a strategy that gives them a sense of control. This is where rebalancing comes into play.

Rebalancing is the process of adjusting your portfolio back to your targeted allocation. For example, say your allocation calls for a 70% allocation to stocks and a 30% allocation to bonds. After a bad year for equities, your portfolio’s allocation changes to 60% stocks and 40% bonds. Rebalancing would prompt you to shift 10% of portfolio dollars out your bond holdings and into stocks, bringing your portfolio back in line with your targets.

Rebalancing is a buy low/sell high strategy—the opposite of what many investors actually do. It prompts you to buy assets after they have fallen in price. This may sound counterintuitive and may even be difficult to do the first time you try to employ it. Yet its bear market benefits may convince you of its value. Rebalancing lessens the blow of bear markets, making it easier to stick with stocks. In addition, rebalancing restores a sense of control. Rather than being left wondering what the best decision is for your portfolio based on what the pundits are saying about market direction, you have a strategy that prompts you to act and gives direction on how to do it.

http://www.aaii.com/journal/article2/the-danger-of-getting-out-of-stocks-during-bear-markets?viewall=true

Being fearfully greedy: Why I buy in bear markets

To conclude, because we don’t know what will happen to prices in the short-term, we can only buy with a long-term goal in mind and hope we’re not hit by some true wealth destroying phenomena like nuclear war or a return to communism.

Greed and fear

Say you’re a young-ish investor like me, with 30 years of earnings ahead, yet already holding a reasonable portfolio.

If you’re fearfully greedy, then when markets are rising – as they did since 2003 – you’re glad your money was invested instead of spent on holidays and TVs.

That’s greed taken care of. (Greed is the easy bit!)

However, you should also be fearful of sudden reversals that rob you as quick as a pickpocket.

In the stock market, money disappears like in Tommy Cooper‘s magic tricks: “Just like that!”

Of course nobody is complacent when markets are consistently falling. Instead, the fear often gets overdone.

Yet if you’re young and well-positioned, you should be glad you’ve got the chance to buy the same shares you were buying last month for 10%, 20%, or even 50% less than before.

You’ll be scared, too. Your new ‘bargain’ shares could halve again in a truly vicious bear market.

The greedy bit is thinking about your future long-term gains. The fearful bit is not over-doing it in the short-term.

http://monevator.com/being-fearfully-greedy-why-i-buy-in-bear-markets/