Bull Market and Bear Market strategies

Core Concept

The stock market cycles between Bull (rising prices) and Bear (falling prices) markets. An intelligent, educated investor understands these conditions and acts strategically, basing decisions on knowledge of their specific stocks rather than on emotion or market sentiment alone.

Key Differences: Investor vs. Trader

• An investor is attached to the company, understands its business, and can distinguish between a general market decline and a company-specific problem.

• This knowledge puts them in an advantageous position to make informed decisions during market volatility.

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Bear Market (Down Market) Strategies

When the market is falling, you have three main options:

1. Sell Immediately: To minimize potential losses.

2. Hold and Do Nothing: Let the market correct itself without taking action.

3. Buy More (Opportunity): If your analysis confirms the company is still sound, you can buy more shares at a lower price to benefit from the decline.

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Bull Market (Up Market) Strategies

When the market is rising, you have three main options to protect against an inevitable correction:

1. Sell a Portion: Sell some shares at the inflated price to lock in profits.

2. Hold and Do Nothing: Remain invested without taking action.

3. Sell for a Profit: Take full advantage of the high prices and exit your position.

A Key Bull Market Tactic:
Sell a portion of your stocks at the high bull market price. After the subsequent market correction drives prices down, use the proceeds to buy back more shares than you originally sold. This reduces your average cost per share and increases your number of holdings.

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Final Piece of Advice

Base your decisions on knowledge, not feelings. Being thoroughly educated about the companies you invest in and their industries makes market conditions less important, as you can confidently discern real problems from temporary market noise.

Embrace the corrections, the bear markets and the crashes

Embrace the corrections, the bear markets and the crashes. 

During these times, the "baby is OFTEN also thrown out with the bath water." 

If you have prepared, these are wonderful times to ADD to your portfolio, especially buying great companies AT WONDERFUL PRICES for the long term. 

Many years after these events, you will soon realise that the lower prices you paid to own these stocks, translate into HIGHER total and compounded annual returns.

Market drops: A 2% drop (normal fluctuation), a 10% drop (market correction), a 20% drop (bear market) and a 40% drop (severe bear market or a crash)

Summary:

How frequent are these drops?

2% drop:  common

10% drop:  one every 2 years

20% drop:  one every 5 years

40% drop:  one every 25 years

A 2% drop is a normal fluctuation within a healthy market, not a crisis. Acting on emotion is the single biggest mistake an investor can make.

A 10% drop, officially considered a "market correction," is a different beast entirely from a 2% dip. It's sharper, more painful, and the sense of panic is palpable. 

Since 1950, the S&P 500 has experienced a correction of 10% or more over 40 times. That's roughly one every two years. It's a normal, albeit unpleasant, part of investing. Every single one of them, to date, has been followed by a recovery and a new high.

A 10% correction is a test of your financial plan and your emotional fortitude. For a well-prepared investor, it's an expected part of the journey and can even be an opportunity. For the unprepared, it's a crisis. Your response should be dictated by your plan, not by the screaming headlines.

A 20% drop, officially crossing into "Bear Market" territory, is a profound psychological and financial event. The sense of fear is pervasive, and the "this time is different" narrative feels overwhelmingly convincing.

More common than most people think. Bear markets are a regular, though painful, feature of the investing landscape.

• Frequency: Since World War II, there have been 14 bear markets (defined as a 20% or greater drop from peak to trough) in the S&P 500.

• That's roughly one every 5-6 years. They are an inevitable part of the market cycle, not a bizarre anomaly.

• Duration & Severity: On average, these bear markets last about 14 months and see a peak-to-trough decline of roughly 33%.

• The Crucial Context: Recovery is the Norm. While painful, every single one of these bear markets has eventually been followed by a new all-time high. The bull markets that follow are, on average, much longer and stronger, lasting about 6 years with an average gain of over 160%.

The key takeaway: A 20% drop is a severe but normal event. It feels like the end of the world, but history shows it is a valley on the long-term path upward.

A 40% drop is a catastrophic event in the financial markets, known as a severe bear market or even a crash. These events are rare, but they are seared into the collective memory of investors because of the immense financial and psychological damage they cause.  

In the modern history of the U.S. stock market (primarily using the S&P 500 and its predecessor indices as a benchmark), a peak-to-trough decline of 40% or more has occurred only a handful of times.

Since 1900, there have been five such devastating declines:

1. The Great Depression (1929-1932): The mother of all market crashes. The stock market plummeted nearly 90% at its worst point. A 40% drop was passed early on in a long, terrifying slide.

   • Cause: A speculative bubble, a banking crisis, and catastrophic economic policy (protectionist tariffs, monetary contraction).

   • Recovery Time: It took until 1954 for the market to regain its 1929 peak—over 25 years.

2. The 1937-1938 "Recession within a Depression": After a partial recovery from the lows of 1932, the market experienced another sharp drop of about -60% from its 1937 peak.

   • Cause: Premature fiscal and monetary tightening by the government and the Federal Reserve.

   • Recovery Time: The market did not sustainably exceed its 1937 peak until the post-WWII boom in the late 1940s.

3. The 1973-1974 Bear Market: A brutal, grinding bear market where the S&P 500 fell -48%.

   • Cause: The OPEC oil embargo, skyrocketing inflation ("stagflation"), and the collapse of the "Nifty Fifty" blue-chip stocks.

   • Recovery Time: It took 7.5 years for the market to reach a new inflation-adjusted high in 1982.

4. The 2000-2002 Dot-Com Crash: After the implosion of the tech bubble, the S&P 500 fell -49%.

   • Cause: Speculative mania in internet and technology stocks with no earnings, followed by a severe recession and the 9/11 attacks.

   • Recovery Time: The S&P 500 reached a new nominal high in 2007, but when adjusted for inflation, it did not fully recover until 2013.

5. The 2007-2009 Financial Crisis: The S&P 500 plunged -57% at its nadir.

   • Cause: A housing bubble, a crisis in subprime mortgages, and a resulting global financial system meltdown.

   • Recovery Time: The S&P 500 reached a new nominal high in 2013, about 5.5 years after the peak.

But a bear market isn't all bad news.

But a bear market isn't all bad news. Sure, it can hurt when your portfolio takes a hit when stock prices fall. But you'd still better be prepared for the inevitable downturns in the stock market, and remember that the situation is only temporary, after all. 

In every instance when the overall market dropped, it returned and then grew to greater heights. In fact, the stock market has a 100 percent success rate when it comes to recovering from a bear market! The only thing to remember is that sometimes it takes longer for the bounce-back to occur.

If you follow a long-term approach to investing, then you know that patience is a virtue whenever you're investing in the stock market. It also helps to keep your vision focused on your long-term horizon whenever the market hits some turbulence. 

By using dollar cost averaging and by investing regularly, you can even make the bear market work for you by taking advantage of generally lower prices with additional purchases. Knowing the market's infallible past record, you can sleep easy -- even when other investors are panicking.

Necessary Bears

Bear markets perform the necessary service of deflating values and sweeping the market clean of stocks that are weak and riding on fads alone. 

Your faith in solid fundamentals will usually pay off over time, but even a great company’s stock can get banged around in a tough market. 

The lesson here is that stocks, as illustrated by the Dow, are good long-term investments, but dangerous short-term bets.

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?

The three bears scenario: how the bear market plays out if a recession occurs in 2022, 2023 or not at all.

In its “three bears” scenario, NDR lays out possibilities for how the bear market plays out if a recession occurs this year, next year, or not at all.

1.  If a recession occurs sometime in the second half of 2022, the stock market could drop another 10% or more. Bear markets that coincide with recessions tend to decline nearly 35% on average and last for 15.3 months. If this were to be the case, the sooner it would start, the sooner it would be over given that a bear market bottoms four months before a recession, setting the stage for a “shorter than average” recessionary bear market.

2.  If a recession occurs in 2023 that would make the current bear market twice as long as average, and likely lead to numerous bear-market rallies that eventually fail as they have in past instances. Clissold cites 1973, 1978, and 2000 as past bear markets that saw numerous rallies between their start and finish with a maximum gain of 15.9%, 14.3%, and 15.5%, respectively.

3.  The last and best scenario is if there is no recession at all. Stocks decline on average by 25% in a non-recessionary bear market over 9.1 months. In the past 50 years, the average decline has been 18% over 6.8 months.

If the Fed can achieve the delicate balance of taming inflation by slowing the economy without tipping the country into a recession, Clissold says, “the cyclical bear is likely close to being over.”

NDR = Ned Davis Research, an independent provider of global investment research based in Nokomis, Florida

How Do You Tell a Bear-Market Rally in Stocks From a New Bull Run? | Morningstar

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.

Beware of chasing bear market rallies, strategists warn

PUBLISHED MON, MAR 30 2020
Nancy Hungerford


KEY POINTS

• Attributing the recent gains in equities and emerging market currencies to extraordinary monetary and fiscal stimulus measures, Eric Robertsen, head of global macro strategy at Standard Chartered, warned clients that the risk-rally lacks sustainability.
• “The full extent of the economic fallout is still unknown, and equity and credit markets still face considerable risks from earnings, downgrades and regulatory changes,” said Robertsen in a note.
• Daniel Gerard, senior multi-asset strategist from State Street, agreed that more information is needed from corporations before declaring a bottom. “No one has real insight yet into the impact into earnings, the fundamental drivers of markets here, that’s the next stage to come,” he said.

Investors in Asia are kicking off the new trading week with a note of caution, keeping an eye on volatility emanating from Wall Street.

Following the Dow’s biggest weekly rally since 1938, and the best performance for the S&P 500 and Nasdaq on the week since 2009, investors are debating whether U.S. markets have already bottomed or if more pain is in store.

Attributing the recent gains in equities and emerging market currencies to extraordinary monetary and fiscal stimulus measures, Eric Robertsen, head of global macro strategy at Standard Chartered, warned clients that the risk-rally lacks sustainability.


Consumer confidence hit

“The release of Q1 brokerage statements over the next month will coincide with the release of global economic data showing the depths of the economic collapse,” Robertsen explains in his weekly note. “We believe these two factors combined will exacerbate the weakness in consumer confidence, already under attack from the growing health crisis and the prospect of extensive unemployment.”

He pointed out that while the market declines have been well publicized, these first quarter statements will put “negative returns in black-and-white print” for retail investors. The losses incurred on traditionally safe investments will also hit home, Robertsen suggested, pointing to a recent 5% to 15% decline in exchange-traded funds tied to U.S. credit markets.

The full extent of the economic fallout is still unknown, and equity and credit markets still face considerable risks from earnings, downgrades and regulatory changes.

Investors are waiting on a deluge of economic data this week stateside that could fuel economic gloom. The focus will be on the weekly jobless claims due Thursday, after the prior report revealed a record 3.2 million in claims for the week that ended March 21. The monthly non-farm employment report is due Friday, but is expected to have less significance since the survey will not yet reflect the major shutdowns in the states most impacted by the virus.


Unknown risks

“The full extent of the economic fallout is still unknown, and equity and credit markets still face considerable risks from earnings, downgrades and regulatory changes,” Robertsen said. “For equities and credit, for example, we believe the hit to corporate profits will last longer than the immediate shock of the health crisis.”

No one has real insight yet into the impact into earnings, the fundamental drivers of markets here, that’s the next stage to come.

Addressing arguments that a 25% peak-to-trough drawdown has already priced in a worst-case scenario from these missing variables, Robertsen said: “We believe this sentiment is premature.”

Daniel Gerard, senior multi-asset strategist from State Street, agreed that more information is needed from corporations before declaring a bottom.

“No one has real insight yet into the impact into earnings, the fundamental drivers of markets here, that’s the next stage to come,” Gerard told CNBC’s Street Signs Asia. He credited central bank and fiscal stimulus measures with taking some of the fear out of the market and allowing participants to get back in.

However, he cautioned that this would not lead to a straight line higher from here.



No sign yet of a strong rebound

Vishnu Varathan, head of economics and strategy at Mizuho Bank, questioned if the stimulus-induced upside for risk assets has already run its course.

He predicted that revenue shocks from coronavirus-related containment measures, as well as supply-chain disruptions, would continue for the foreseeable future.

“The bad news could be seeping in, whereas the big bazookas are done with. The shock and awe of policy is about climaxing right now, and there is still not a good sign of a very strong rebound coming through,” Varathan told CNBC’s Street Signs Asia.

Robertsen looked back to the global financial crisis as a lesson in policy-induced rebounds. “Don’t forget that equities bounced in November 2008 when support measures were announced, before trading down to new lows in March 2009. Only then did the recovery begin.”


https://www.cnbc.com/2020/03/30/beware-of-chasing-bear-market-rallies-strategists-warn.html?fbclid=IwAR1sEiaZiQog6-V-SeTaPnTM74qSc2IbaOAOtIb5-_EzHP2cruiYslgyRFU

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?

Bull Market – Bear Market

1.  Bull Market and Bear Market. What do they mean?

(a)  What is a bull market?

A bull market is defined by steadily rising prices. 

The economy is thriving and companies are generally making a profit.

Most investors feel that this trend will continue for some time.


(b)  What is a bear market?

By contrast a bear market is one where prices are dropping. 

The economy is probably in a decline and many companies are experiencing difficulties.

Now the investors are pessimistic about the future profitability of the stock market.

Since investors’ attitudes tend to drive their willingness to buy or sell these trends normally perpetuate themselves until significant outside events intervene to cause a reversal of opinion.



2.  Investing in a bull market

In a bull market the investor hopes to buy early and hold the stock until it has reached it’s high.

Obviously predicting the low and high is impossible. 

Since most investors are “bullish” they make more money in the rising bull market.

They are willing to invest more money as the stock is rising and realize more profit.



3.  Investing in a bear market

Investing in a bear market incurs the greatest possibility of losses because the trend in downward and there is no end in sight.

An investment strategy in this case might be short selling. 

Short selling is selling a stock that you don’t own.

You can make arrangements with your broker to do this.

You will in effect be borrowing shares from your broker to sell in the hope of buying them back later when the price has dropped.

You will profit from the difference in the two prices. 

Another strategy for a bear market would be buying defensive stocks. 

These are stocks like utility companies that are not affected by the market downturn or companies that sell their products during all economic conditions.