An extended bear market can test everybody's patience and unsettle the most experienced investors.
Small bears were easier to handle than the big (extended) bears of 1929 and 1973 - 74.
No matter how good you are at picking stocks, your stocks will go down, and just when you think the bottom has been reached, they will go down some more. If you own stock mutual funds, you won't do much better, because the mutual funds will go down as well. Their fate is tied to the fate of the stocks they own.
1929: People who bought stocks at the high point in 1929 (this was a small group, fortunately) had to wait 25 years to break even on the prices. Imagine your stocks being in the red for a quarter-century!
1973-74: From the high point in 1969 before the crash of 1973-74, it took 12 years to break even.
Perhaps we'll never see another bear market as severe as the one in 1929 - that one was prolonged by the Depression. But we cannot ignore the possibility of another bear of the 1973-74 variety, when stock prices are down long enough for a generation of children to get through elementary, junior high and high school.
Investors can't avoid corrections and bear markets any more than northerners can avoid snowstorms.
Showing posts with label bear. Show all posts
Showing posts with label bear. Show all posts
Monday, 25 January 2010
Predicting the market is difficult: Chorus of "experts" claiming to see bears that never show up.
It would be nice to be able to get a warning signal, so you could sell your stocks and your mutual funds just before a bear marekt and then scoop them up later on the cheap. The trouble is nobody has figured out a way to predict bear markets. The record on that is no better than the record on predicting recessions.
Once in a while, somebody calls a bear and becomes a celebrity overnight - a stock analyst named Elaine Garzarelli was celebrated for predicting the Crash fo 1987. (Roubini for the recent bear market of 2008). But you never hear of somebody prediting two bear markets in a row.
What you do hear is a chorus of "experts" claiming to see bears that never show up.
Since we are all accustomed to taking action to protect ourselves from snowstorms and hurricanes, it's natural that we would try to take action to protect ourselves from bear markets, even though this is one case in which being prepared like a Boy Scout does more harm than good. Far more money has been lost by investors trying to anticipate corrections than has been lost in all the corrections combined.
http://myinvestingnotes.blogspot.com/2010/01/another-telling-statistics.html
Another telling statistics on Market Timing: Missing the chance to run with the bulls
Great Timing versus Lousy Timing
Once in a while, somebody calls a bear and becomes a celebrity overnight - a stock analyst named Elaine Garzarelli was celebrated for predicting the Crash fo 1987. (Roubini for the recent bear market of 2008). But you never hear of somebody prediting two bear markets in a row.
What you do hear is a chorus of "experts" claiming to see bears that never show up.
Since we are all accustomed to taking action to protect ourselves from snowstorms and hurricanes, it's natural that we would try to take action to protect ourselves from bear markets, even though this is one case in which being prepared like a Boy Scout does more harm than good. Far more money has been lost by investors trying to anticipate corrections than has been lost in all the corrections combined.
http://myinvestingnotes.blogspot.com/2010/01/another-telling-statistics.html
Another telling statistics on Market Timing: Missing the chance to run with the bulls
Great Timing versus Lousy Timing
Tuesday, 10 February 2009
Saturday, 25 October 2008
Buy Low Sell High Approach
We are convinced that the average investor cannot deal successfully with price movements by endeavoring to forecast them.
Can he benefit from them after they have taken place - i.e. by buying after each major decline and selling out after each major advance?
The fluctuations of the market over a period of many years prior to 1950 lent considerable encouragement to that idea.
In fact, a classic definition of a "shrewd investor " was "one who bought in a bear market when everyone else was selling, and sold out in a bull market when everyone else was buying."
Between 1897 and 1949, there were ten complete market cycles, running from bear-market low to bull-market high and back to bear-market low.
The percentage of subsequent declines ranged from 24% to 80%, with most found between 40% and 50%. (It should be remembered that a decline of 50% fully offsets a preceding advance of 100%)
Nearly all the bull markets had a number of well-defined characteristics in common, such as
(1) a historically high price level,
(2) high price/earnings PE ratio,
(3) low dividend yields as against bond yields,
(4) much speculation on margin, and
(5) many offerings of new common-stock issues of poor quality.
Thus to the student of stock-market history it appeared that the intelligent investor should have been able to identify the recurrent bear and bull markets, to buy in the former and sell in the latter, and to do so for the most part at reasonably short intervals of time.
Various methods were developed for determining buying and selling levels of the general market, based on either value factors or percentage movements of prices or both.
But we must point out that even prior to the unprecedented bull market that began in 1949, there were sufficient variations in the successive market cycles to complicate and sometimes frustrate the desirable process of buying low and selling high.
The most notable of these departures, of course, was the great bull market of the late 1920s, which threw all calculations badly out of gear.
Even in 1949, therefore, it was by no means a certainty that the investor could base his financial policies and procedures mainly on the endeavor to buy at low levels in bear markets and to sell out at high levels in bull markets.
It turned out, in the sequel, that the opposite was true. The market's behaviour in the past 20 years has not followed the former pattern, nor obeyed what once were well-established danger signals, nor permitted its successful exploitation by applying old rules for buying low and selling high.
Whether the old, fairly regular bull-and-bear market pattern will eventually return we do not know.
But it seems unrealistic to us for the investor to endeavor to base his present policy on the classic formula - i.e., to wait for demonstrable bear-market levels before buying any common stocks.
Our recommended policy has, however, made provision for changes in the proportion of common stocks to bonds in the portfolio, if the investor chooses to do so, according as the level of stock prices appears less or more attractive by value standards.
Ref: Intelligent Investor by Benjamin Graham
Can he benefit from them after they have taken place - i.e. by buying after each major decline and selling out after each major advance?
The fluctuations of the market over a period of many years prior to 1950 lent considerable encouragement to that idea.
In fact, a classic definition of a "shrewd investor " was "one who bought in a bear market when everyone else was selling, and sold out in a bull market when everyone else was buying."
Between 1897 and 1949, there were ten complete market cycles, running from bear-market low to bull-market high and back to bear-market low.
- Six of these took no longer than 4 years,
- four ran for 6 or 7 years, and
- one - the famous "new era" cycle of 1921 -1932 - lasted 11 years.
The percentage of subsequent declines ranged from 24% to 80%, with most found between 40% and 50%. (It should be remembered that a decline of 50% fully offsets a preceding advance of 100%)
Nearly all the bull markets had a number of well-defined characteristics in common, such as
(1) a historically high price level,
(2) high price/earnings PE ratio,
(3) low dividend yields as against bond yields,
(4) much speculation on margin, and
(5) many offerings of new common-stock issues of poor quality.
Thus to the student of stock-market history it appeared that the intelligent investor should have been able to identify the recurrent bear and bull markets, to buy in the former and sell in the latter, and to do so for the most part at reasonably short intervals of time.
Various methods were developed for determining buying and selling levels of the general market, based on either value factors or percentage movements of prices or both.
But we must point out that even prior to the unprecedented bull market that began in 1949, there were sufficient variations in the successive market cycles to complicate and sometimes frustrate the desirable process of buying low and selling high.
The most notable of these departures, of course, was the great bull market of the late 1920s, which threw all calculations badly out of gear.
Even in 1949, therefore, it was by no means a certainty that the investor could base his financial policies and procedures mainly on the endeavor to buy at low levels in bear markets and to sell out at high levels in bull markets.
It turned out, in the sequel, that the opposite was true. The market's behaviour in the past 20 years has not followed the former pattern, nor obeyed what once were well-established danger signals, nor permitted its successful exploitation by applying old rules for buying low and selling high.
Whether the old, fairly regular bull-and-bear market pattern will eventually return we do not know.
But it seems unrealistic to us for the investor to endeavor to base his present policy on the classic formula - i.e., to wait for demonstrable bear-market levels before buying any common stocks.
Our recommended policy has, however, made provision for changes in the proportion of common stocks to bonds in the portfolio, if the investor chooses to do so, according as the level of stock prices appears less or more attractive by value standards.
Ref: Intelligent Investor by Benjamin Graham
Wednesday, 22 October 2008
What should I do in a bear market situation?
The best strategy is to go for a holiday and let the market cool off.
When things have settled down, you may commence to do some bargain hunting.
Ref: Making Mistakes in the Stock Market by Wong Yee
When things have settled down, you may commence to do some bargain hunting.
Ref: Making Mistakes in the Stock Market by Wong Yee
What is a bear market?
It is a situation whereby share prices keep on falling lower and lower.
Although at a certain point in time share prices will head for a rebound, the rebound normally will not be sustained.
Thus, the downward escalation of share prices resumes as bad news keeps surfacing one after another.
Investors and speculators become jittery and sell their shares at a loss.
Bad debts become the order of the day and lawyers are busy issuing demand letters.
Suddenly, those smiling faces are replaced with sadness and a solemn mood.
Brokers also find themselves in trouble when clients fail to settle debts.
STOCK MARKET INDEX ----> falling -----> Low ------> New Lows----->
Scenario:
Bad news abound
Forced selling by brokers
Bad debts to be collected
Sad faces around
Although at a certain point in time share prices will head for a rebound, the rebound normally will not be sustained.
Thus, the downward escalation of share prices resumes as bad news keeps surfacing one after another.
Investors and speculators become jittery and sell their shares at a loss.
Bad debts become the order of the day and lawyers are busy issuing demand letters.
Suddenly, those smiling faces are replaced with sadness and a solemn mood.
Brokers also find themselves in trouble when clients fail to settle debts.
STOCK MARKET INDEX ----> falling -----> Low ------> New Lows----->
Scenario:
Bad news abound
Forced selling by brokers
Bad debts to be collected
Sad faces around
Wednesday, 13 August 2008
What are you -- a bull, bear, chicken or owl?
http://www.thejakartapost.com/news/2007/09/23/what-are-you-bull-bear-chicken-or-owl.html-0
What are you -- a bull, bear, chicken or owl?
The Jakarta Post , Jakarta Sun, 09/23/2007
Financial markets of late have been volatile, to say the least.
After soaring to record highs in June, the U.S. and most other stock markets then fell by up to 10 percent before making a partial recovery. Each day brings surprises with ups and downs reflecting the good or bad news of the day.
Stock markets have also been spooked by the crisis in the lower end of the housing market in the U.S. and the resulting collapse of a number of related hedge funds.
Even a rock-solid UK building society has come under pressure as panicking investors withdraw their savings. The price of oil has hit record highs and gold has gone over the US$700 an ounce mark. (Remember my earlier advice to have holdings in energy and precious metals?)
Are the 'bears' winning?
With housing worries and unemployment growing in the U.S., with consumer confidence and the dollar falling (note that the rupiah has been falling with the dollar), fear of a recession is on everyone's mind. A recession in the U.S. would invariably impact the global economy. In such a scenario the bears will certainly have it.
In case any reader is not familiar with the term, a ""bear"" market technically signifies one that has fallen at least 20 percent, the allusion to the bear being that a bear is ""clawing it down'.
Have the 'bulls' conceded defeat?
Again, for readers unfamiliar with the terminology, a ""bull"" market is one that is rising, the analogy this time being one of a bull ""tossing it upward"".
All is far from being gloom and doom except for those directly affected by the narrow band of assets that have collapsed in value. Most economies are still strong and expanding.
Unemployment is still close to historical lows in many countries and the twin powerhouses of India and China continue to steam ahead supporting commodity-based economies such as Australia.
A lower dollar can also be positive for the U.S. as it will discourage imports and stimulate exports. Another factor that is encouraging for stock markets is that valuations are not particularly expensive.
Many P/E (price-to-earnings ratios) are around 16/1, which means shares are paying dividends of over 5 percent. This compares favorably with bonds and money markets, particularly since stocks have the potential for capital growth over time.
During the height of the technology boom some shares were trading at P/E levels of 300/1 which meant a return of only one-third of 1 percent per annum or, putting it another way, it would take an investor 300 years to get his money back if he relied on the dividend alone.
Of course, people were relying on capital growth but at those P/E levels their hopes were doomed. We do not have that scenario today.
So, overall, a ""crash"" on the scale of 1987 or the bursting of the technology bubble in 2000 seems unlikely, although if the property market or unemployment worsen in coming months the bears could have their way. If markets can limit their fall from previous highs to less than 20 percent, then what is happening now can be written off as a ""correction"".
What does history tell us?
Since 1946 there have been 10 official ""bear"" markets (falls of at least 20 percent) based on the S&P 500 index. During the same period there have been 16 ""corrections"" (falls of at least 10 percent). Anyone who invests in the stock markets should keep this in mind.
How long can it take for markets to recover? Historically, (since 1946) it has taken 669 days on average to recover from a full bear market and 111 days to recover from a correction. Hence the reason for repeated advice to the unwary that investing in the stock markets is not for the short term.
The bulls are unquestionable winners over the long term as stocks invariably rise over time. Their rise is not a constant one, however, and is regularly interrupted by corrections and bear markets.
These are a necessary part of the process; without them, the markets would be driven to unrealistic heights which, in turn, could lead to a serious collapse of the system. A bit like geological faults; when pressure from the earth's crust builds up, it is preferable to have it relieved gradually by minor earthquakes rather than delay until the advent of a major one.
How to win in a bear market
The secret is simply to invest when others are selling. To do this requires resisting our instinct (built into our genes over thousands of years) to follow the herd.
Regular savers also win in a bear market because they continue to buy shares or units when prices have fallen. Provided they keep doing this they will benefit when the next bull market comes along.
Patience and perseverance is the key, since the recovery could take several years, but rest assured, a bull market will follow a bear market as sure as night follows day.
Investing in a hedge fund that ""goes short"" is also a way to make money in falling markets. In this case the fund manager does not invest directly in stocks but actually borrows and sells them.
He then repurchases and returns them at a later date. If he has judged correctly and the repurchase price is lower than what he paid then the difference, less expenses, is pure profit.
Such a fund can be a useful component in a portfolio to soften the impact of a falling market, but much depends on the skill of the manager. It is not something you should try at home!
Where do the chickens come in?
Bulls and bears are part of standard financial terminology. Chickens and owls are not, but I thought I would throw them in to add a bit of color.
Chickens, I would say, are those who panic out of an investment when faced with the grunts of the bear. This is quite a natural reaction. Chickens can live quite comfortably with vegetarian bulls but would not fare well in the proximity of a bear.
In fact, a chicken could come out quite well if it flies out at the top of a bull market. But, in practice, it tends not to react until the market has fallen a long way, then it finally panics.
But it's too late; it has already fallen victim to the bear and is no longer around when the bull comes back onto the scene to save it.
Another group of chickens will not even venture into the fray. They remain with cash under the mattress or in a bank account year after year watching the purchasing power whittle away while others are making their fortunes.
But if they are of a nervous disposition this is probably their best strategy as they would probably come off worse among the bulls and bears.
And finally the owls ...
What does the wise old owl do? It sits quietly on a high branch watching the world go by until a suitable victim is in sight. It then swoops and grabs its prey.
The financial analogy is an investor who quietly and unemotionally watches the markets go up and down and then seizes the opportunity when he spots a bargain. I would place Warren Buffett, the world's most successful stock market investor, in this category.
So who will win?
History and logic tell us the bulls will be the long-term winners. The stock markets represent real assets and global wealth.
Bear markets will still have their day every few years. They can inflict a lot of pain but if we see how they fit into the big picture we can live with them and even profit from them.
While ""bulls"" and ""bears"" are terms describing the markets they can also relate to investors who can be described as ""bullish"" or ""bearish"".
What should we strive to be? Clearly, unless we are bullish we will never get anywhere, but there are times when we may need to be bearish.
There may even be times when it can pay to be a ""chicken"" but it is not easy to judge the timing. It can also pay to be a ""wise old owl""; just stay calm and alert.
You may spot a great opportunity!
Colin Bloodworth is a senior financial adviser with Financial Partners International.
What are you -- a bull, bear, chicken or owl?
The Jakarta Post , Jakarta Sun, 09/23/2007
Financial markets of late have been volatile, to say the least.
After soaring to record highs in June, the U.S. and most other stock markets then fell by up to 10 percent before making a partial recovery. Each day brings surprises with ups and downs reflecting the good or bad news of the day.
Stock markets have also been spooked by the crisis in the lower end of the housing market in the U.S. and the resulting collapse of a number of related hedge funds.
Even a rock-solid UK building society has come under pressure as panicking investors withdraw their savings. The price of oil has hit record highs and gold has gone over the US$700 an ounce mark. (Remember my earlier advice to have holdings in energy and precious metals?)
Are the 'bears' winning?
With housing worries and unemployment growing in the U.S., with consumer confidence and the dollar falling (note that the rupiah has been falling with the dollar), fear of a recession is on everyone's mind. A recession in the U.S. would invariably impact the global economy. In such a scenario the bears will certainly have it.
In case any reader is not familiar with the term, a ""bear"" market technically signifies one that has fallen at least 20 percent, the allusion to the bear being that a bear is ""clawing it down'.
Have the 'bulls' conceded defeat?
Again, for readers unfamiliar with the terminology, a ""bull"" market is one that is rising, the analogy this time being one of a bull ""tossing it upward"".
All is far from being gloom and doom except for those directly affected by the narrow band of assets that have collapsed in value. Most economies are still strong and expanding.
Unemployment is still close to historical lows in many countries and the twin powerhouses of India and China continue to steam ahead supporting commodity-based economies such as Australia.
A lower dollar can also be positive for the U.S. as it will discourage imports and stimulate exports. Another factor that is encouraging for stock markets is that valuations are not particularly expensive.
Many P/E (price-to-earnings ratios) are around 16/1, which means shares are paying dividends of over 5 percent. This compares favorably with bonds and money markets, particularly since stocks have the potential for capital growth over time.
During the height of the technology boom some shares were trading at P/E levels of 300/1 which meant a return of only one-third of 1 percent per annum or, putting it another way, it would take an investor 300 years to get his money back if he relied on the dividend alone.
Of course, people were relying on capital growth but at those P/E levels their hopes were doomed. We do not have that scenario today.
So, overall, a ""crash"" on the scale of 1987 or the bursting of the technology bubble in 2000 seems unlikely, although if the property market or unemployment worsen in coming months the bears could have their way. If markets can limit their fall from previous highs to less than 20 percent, then what is happening now can be written off as a ""correction"".
What does history tell us?
Since 1946 there have been 10 official ""bear"" markets (falls of at least 20 percent) based on the S&P 500 index. During the same period there have been 16 ""corrections"" (falls of at least 10 percent). Anyone who invests in the stock markets should keep this in mind.
How long can it take for markets to recover? Historically, (since 1946) it has taken 669 days on average to recover from a full bear market and 111 days to recover from a correction. Hence the reason for repeated advice to the unwary that investing in the stock markets is not for the short term.
The bulls are unquestionable winners over the long term as stocks invariably rise over time. Their rise is not a constant one, however, and is regularly interrupted by corrections and bear markets.
These are a necessary part of the process; without them, the markets would be driven to unrealistic heights which, in turn, could lead to a serious collapse of the system. A bit like geological faults; when pressure from the earth's crust builds up, it is preferable to have it relieved gradually by minor earthquakes rather than delay until the advent of a major one.
How to win in a bear market
The secret is simply to invest when others are selling. To do this requires resisting our instinct (built into our genes over thousands of years) to follow the herd.
Regular savers also win in a bear market because they continue to buy shares or units when prices have fallen. Provided they keep doing this they will benefit when the next bull market comes along.
Patience and perseverance is the key, since the recovery could take several years, but rest assured, a bull market will follow a bear market as sure as night follows day.
Investing in a hedge fund that ""goes short"" is also a way to make money in falling markets. In this case the fund manager does not invest directly in stocks but actually borrows and sells them.
He then repurchases and returns them at a later date. If he has judged correctly and the repurchase price is lower than what he paid then the difference, less expenses, is pure profit.
Such a fund can be a useful component in a portfolio to soften the impact of a falling market, but much depends on the skill of the manager. It is not something you should try at home!
Where do the chickens come in?
Bulls and bears are part of standard financial terminology. Chickens and owls are not, but I thought I would throw them in to add a bit of color.
Chickens, I would say, are those who panic out of an investment when faced with the grunts of the bear. This is quite a natural reaction. Chickens can live quite comfortably with vegetarian bulls but would not fare well in the proximity of a bear.
In fact, a chicken could come out quite well if it flies out at the top of a bull market. But, in practice, it tends not to react until the market has fallen a long way, then it finally panics.
But it's too late; it has already fallen victim to the bear and is no longer around when the bull comes back onto the scene to save it.
Another group of chickens will not even venture into the fray. They remain with cash under the mattress or in a bank account year after year watching the purchasing power whittle away while others are making their fortunes.
But if they are of a nervous disposition this is probably their best strategy as they would probably come off worse among the bulls and bears.
And finally the owls ...
What does the wise old owl do? It sits quietly on a high branch watching the world go by until a suitable victim is in sight. It then swoops and grabs its prey.
The financial analogy is an investor who quietly and unemotionally watches the markets go up and down and then seizes the opportunity when he spots a bargain. I would place Warren Buffett, the world's most successful stock market investor, in this category.
So who will win?
History and logic tell us the bulls will be the long-term winners. The stock markets represent real assets and global wealth.
Bear markets will still have their day every few years. They can inflict a lot of pain but if we see how they fit into the big picture we can live with them and even profit from them.
While ""bulls"" and ""bears"" are terms describing the markets they can also relate to investors who can be described as ""bullish"" or ""bearish"".
What should we strive to be? Clearly, unless we are bullish we will never get anywhere, but there are times when we may need to be bearish.
There may even be times when it can pay to be a ""chicken"" but it is not easy to judge the timing. It can also pay to be a ""wise old owl""; just stay calm and alert.
You may spot a great opportunity!
Colin Bloodworth is a senior financial adviser with Financial Partners International.
Wednesday, 6 August 2008
The bear isn't all bad. What exactly is a bear market?
http://www.douglasgerlach.com/clubs/askdoug/bearmarket.html
The Looming Bear
by Douglas Gerlach
Market headlines of recent days are using words that seem tailored to strike panic in the hearts of investors: fear, suffering, carnage.
Starting with the technology stocks of the Nasdaq, and now spreading even to the blue chip stalwarts of the Dow, this market sell-off is bringing us into territory that smells distinctively bear-ish. After enjoying years of great market news, it's unfamiliar territory for many of us.
But as Peter Lynch likes to point out, "When it's 15 below in Minnesota, they don't panic -- they just wait until spring." The market has gone up and down throughout its history, and it doesn't pay to panic when the market declines.
What exactly is a bear market? It's an extended period when stock prices generally decline. It can last for months, or even for years. A bull market is a period when stock prices generally increase. These terms originated back in the 1800s, but no one really knows how or why they came into use, nor why the bull came to symbolize periods of increasing prices while the bear represents downturns.
When you look at the market from a statistical perspective, you can see that it's very common for the market to experience some serious downturns. From 1928 through 1997, the S&P 500 declined in 20 of those 72 years. In eight of those years, it declined greater than 10 percent, and greater than 20 percent in four of the years. And that's not even counting the times that the market has declined greater than 10 percent or even 20 percent in the middle of a year and then recovered!
On the other hand, the S&P 500 has ended the year higher than it started out in 52 of 72 years. In 41 years, the S&P 500 ended up greater than 10 percent, and in 28 years, it closed the year with a 20 percent or greater gain.
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.
The Looming Bear
by Douglas Gerlach
Market headlines of recent days are using words that seem tailored to strike panic in the hearts of investors: fear, suffering, carnage.
Starting with the technology stocks of the Nasdaq, and now spreading even to the blue chip stalwarts of the Dow, this market sell-off is bringing us into territory that smells distinctively bear-ish. After enjoying years of great market news, it's unfamiliar territory for many of us.
But as Peter Lynch likes to point out, "When it's 15 below in Minnesota, they don't panic -- they just wait until spring." The market has gone up and down throughout its history, and it doesn't pay to panic when the market declines.
What exactly is a bear market? It's an extended period when stock prices generally decline. It can last for months, or even for years. A bull market is a period when stock prices generally increase. These terms originated back in the 1800s, but no one really knows how or why they came into use, nor why the bull came to symbolize periods of increasing prices while the bear represents downturns.
When you look at the market from a statistical perspective, you can see that it's very common for the market to experience some serious downturns. From 1928 through 1997, the S&P 500 declined in 20 of those 72 years. In eight of those years, it declined greater than 10 percent, and greater than 20 percent in four of the years. And that's not even counting the times that the market has declined greater than 10 percent or even 20 percent in the middle of a year and then recovered!
On the other hand, the S&P 500 has ended the year higher than it started out in 52 of 72 years. In 41 years, the S&P 500 ended up greater than 10 percent, and in 28 years, it closed the year with a 20 percent or greater gain.
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.
Who said it is impossible to make $$$$$ in bear market?
________________________________
Dear 陈全兴,
there r 2 choices for one to invest in bear mkt,
1) Buy high dividend yield blue chip stock esp those traded with PE < 10.
2)even if they r not high dividend payer, buy if blue chip selling to u @ around 7+-, it is still worth 4 consideration.
try to avoid property ,GLC n construction stocks, if u doubt , let see what happen to their shares price by end of this year or begining of next year ^V^
Oil n gas srctor also not a bad choice but u r advice to bottom fish them @ PE < 10 also for safe play.
http://www.samgang.blogspot.com/
http://samgang.blogspot.com/2008/07/v-who-said-it-is-impossible-to-make-in.html
_________________________________
I enjoy visiting the above blog. There are very good advice given on investing by Sam of this blog. I copy and paste here one of his posting above. The advice given are excellent and definitely safe. One can be grateful for such advice given expertly, freely and genuinely.
Dear 陈全兴,
there r 2 choices for one to invest in bear mkt,
1) Buy high dividend yield blue chip stock esp those traded with PE < 10.
2)even if they r not high dividend payer, buy if blue chip selling to u @ around 7+-, it is still worth 4 consideration.
try to avoid property ,GLC n construction stocks, if u doubt , let see what happen to their shares price by end of this year or begining of next year ^V^
Oil n gas srctor also not a bad choice but u r advice to bottom fish them @ PE < 10 also for safe play.
http://www.samgang.blogspot.com/
http://samgang.blogspot.com/2008/07/v-who-said-it-is-impossible-to-make-in.html
_________________________________
I enjoy visiting the above blog. There are very good advice given on investing by Sam of this blog. I copy and paste here one of his posting above. The advice given are excellent and definitely safe. One can be grateful for such advice given expertly, freely and genuinely.
Goodbye, Bear Market?
http://www.kiplinger.com/columns/value/archive/2008/va0714.htm
"Believe it or not, history offers surprisingly good news about what the stock market will likely do from here. No, history doesn't always repeat itself, but, as the saying goes, it rhymes. So please don't cash in your stocks for CDs until you read the rest of this article. To ignore history would be folly."
"Do things seem worse than they were during other bear markets? If so, it's partly because of our tendency to forget the distant past and focus instead on the recent past. I submit that the events surrounding many past bear markets were at least as frightening as those of this one. I certainly remember the anxiety surrounding the 1987 crash, when the Dow Jones industrial average plunged 22.6% in one day—eclipsing the 1929 crash. I thought we might well enter a depression. Instead, stocks hit bottom less than two months later."
"Yet, soon after the onset of a bear market, the market generally has risen. One month after breaking the 20% threshold, the S&P had gained 3%, on average, during those nine bear markets. Two months later, it had risen 6%. on average. Three months later, it was up 5%, and six months later, the S&P had returned 7%. Twelve months after the initial decline, the market had surged 17%, on average."
How can the market advance so much so quickly when stocks tumble another 11% after hitting the 20% bear market threshold?
James Stack, president of InvesTech Research, says it's because bear markets tend to be "V"-shaped in their final stages. That is, share prices tend to decline dramatically and quickly as investors capitulate, then rebound just as quickly. "Once a bear market ends, the rally out of that bottom is very sharp and very, very profitable," Stack says.
Yes, we all know that averages and statistics can be misleading. After all, the returns above are for the average bear market. What's to say that this will turn out to be an average bear market, with all the bad news still out there?
"Believe it or not, history offers surprisingly good news about what the stock market will likely do from here. No, history doesn't always repeat itself, but, as the saying goes, it rhymes. So please don't cash in your stocks for CDs until you read the rest of this article. To ignore history would be folly."
"Do things seem worse than they were during other bear markets? If so, it's partly because of our tendency to forget the distant past and focus instead on the recent past. I submit that the events surrounding many past bear markets were at least as frightening as those of this one. I certainly remember the anxiety surrounding the 1987 crash, when the Dow Jones industrial average plunged 22.6% in one day—eclipsing the 1929 crash. I thought we might well enter a depression. Instead, stocks hit bottom less than two months later."
"Yet, soon after the onset of a bear market, the market generally has risen. One month after breaking the 20% threshold, the S&P had gained 3%, on average, during those nine bear markets. Two months later, it had risen 6%. on average. Three months later, it was up 5%, and six months later, the S&P had returned 7%. Twelve months after the initial decline, the market had surged 17%, on average."
How can the market advance so much so quickly when stocks tumble another 11% after hitting the 20% bear market threshold?
James Stack, president of InvesTech Research, says it's because bear markets tend to be "V"-shaped in their final stages. That is, share prices tend to decline dramatically and quickly as investors capitulate, then rebound just as quickly. "Once a bear market ends, the rally out of that bottom is very sharp and very, very profitable," Stack says.
Yes, we all know that averages and statistics can be misleading. After all, the returns above are for the average bear market. What's to say that this will turn out to be an average bear market, with all the bad news still out there?
What to do when the stock markets decline sharply?
http://www.wfic.org/article/page
What to do when the stock markets decline sharply?
By Claus W. Silfverberg, director, WFIC
According to one theory you should stay calm and do nothing. The stock market will eventually climb to new heights. And it is impossible for you to time your investments – the short term development of the stock market is unpredictable, most of the time the market is flat and stable, and positive and negative price developments occur so fast you are not able to react.
According to a second theory you should rebalance your portfolio and buy more stocks. Rebalancing is necessary because you have an investment strategy or an asset allocation, which you believe is just right for you. When the stock market decline the relative value of your stocks diminish and you need to buy more stocks to re-establish the right proportions.
According to a third theory – advanced by a.o. Warren Buffett - you should “be greedy when everybody else is fearful” – i.e. you should buy more stocks. When stock markets decline, investors tend to overreact, and stocks fall to prices well below their long term value.
According to a fourth theory you should have stop losses on all your shares and sell immediately when the price drops below the indicated level. Since this theory mainly applies to individual stocks and not stock markets in general, perhaps we may neglect it when considering declines on the stock market.
According to a fifths theory you should never buy stocks as long as they are falling in prices, but wait until the price fall has stopped. Then you should be an active investor.
According to a sixth theory you should sell your stocks when the short term moving average price falls below the long term moving average price, and only start buying again when the opposite occurs.
What do private investors actually do when the stock market decline?
Most of us stop trading. Most of us act according to the new trend of the stock market with a 6 months delay – both when the stock market collapse, and when a new bull market begins. Most of us overreact based on our short term experience – at one time we are too optimistic, and at another time we are too pessimistic. Some of us loose a terrible lot of money because we have committed a number of sins – we have too few stocks in our portfolio, have stocks in poor quality companies, have illiquid stocks, or have been investing based on borrowed money or money we need for daily consumption.
Conclusion
It is difficult to tell which of the theories is the right one, but looking at our normal behaviour it seems clear to me that we need to invest in a more rational manner – do our homework before choosing the companies in which we invest, base our investment on long term perspectives, base our investment on fundamentals such as p/e figures over a long period of time, base our investments on demographics and macroeconomics, learn about the stock market fundamentals, and last but not least base our investments on our individual investment profile and strategy, and not on whether the stock market goes up or down.
What to do when the stock markets decline sharply?
By Claus W. Silfverberg, director, WFIC
According to one theory you should stay calm and do nothing. The stock market will eventually climb to new heights. And it is impossible for you to time your investments – the short term development of the stock market is unpredictable, most of the time the market is flat and stable, and positive and negative price developments occur so fast you are not able to react.
According to a second theory you should rebalance your portfolio and buy more stocks. Rebalancing is necessary because you have an investment strategy or an asset allocation, which you believe is just right for you. When the stock market decline the relative value of your stocks diminish and you need to buy more stocks to re-establish the right proportions.
According to a third theory – advanced by a.o. Warren Buffett - you should “be greedy when everybody else is fearful” – i.e. you should buy more stocks. When stock markets decline, investors tend to overreact, and stocks fall to prices well below their long term value.
According to a fourth theory you should have stop losses on all your shares and sell immediately when the price drops below the indicated level. Since this theory mainly applies to individual stocks and not stock markets in general, perhaps we may neglect it when considering declines on the stock market.
According to a fifths theory you should never buy stocks as long as they are falling in prices, but wait until the price fall has stopped. Then you should be an active investor.
According to a sixth theory you should sell your stocks when the short term moving average price falls below the long term moving average price, and only start buying again when the opposite occurs.
What do private investors actually do when the stock market decline?
Most of us stop trading. Most of us act according to the new trend of the stock market with a 6 months delay – both when the stock market collapse, and when a new bull market begins. Most of us overreact based on our short term experience – at one time we are too optimistic, and at another time we are too pessimistic. Some of us loose a terrible lot of money because we have committed a number of sins – we have too few stocks in our portfolio, have stocks in poor quality companies, have illiquid stocks, or have been investing based on borrowed money or money we need for daily consumption.
Conclusion
It is difficult to tell which of the theories is the right one, but looking at our normal behaviour it seems clear to me that we need to invest in a more rational manner – do our homework before choosing the companies in which we invest, base our investment on long term perspectives, base our investment on fundamentals such as p/e figures over a long period of time, base our investments on demographics and macroeconomics, learn about the stock market fundamentals, and last but not least base our investments on our individual investment profile and strategy, and not on whether the stock market goes up or down.
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