the bear market ALMANAC
The first five days of January, too, act as an earlier warning. Now, those stats probably don’t matter. If the stock market tends to outperform every Tuesday in February historically, it’s likely just chance. There’s nothing behind it. But an almanac can collect a lot of useful information. It can confirm patterns that you thought may have existed and show you what you need to watch out for. Right now, you need to be planning for a bear market. A bear market, of course, is the label that traders use when stocks decline by 20% or more. But if you start fiddling with charts or spreadsheets, you’ll find that popular definition to be worth little. After all, is it only 20% from an all-time high? That’s not very useful in a period like the one after 2009, when stocks took nearly a decade to reach new highs. In spirit, we want to define a bear market as “ a period of prolonged negativity in the stock market, of such a magnitude that you’d like to have a plan in place to prepare for it .” In simple terms, if the market drops far, fast... or takes a lesser decline over a sustained period, then we’ll call that a bear market worth preparing for. So let’s see the bear markets... We applied that definition to the S&P 500 Index (rather than the Dow Jones Industrial Average) to get a broader gauge of the market. Here’s the chart of bear markets since 1940, and the table of bull and bear markets with their lengths and returns...
IT'S COMING...
The economy has started to show signs of stress. But with stocks near all-time highs you may not want to hear about bear markets or the next crash. But it’s coming... And you need to think about it on the way up... not on the way down. This problem plagues many people when they plan their finances. Our heads get filled with a hodgepodge of rules, strategies, and “facts” that were never proven by data. We end up with a lot of random ideas. And our natural tendency is to stitch things together in order to create coherent views. That’s one reason I love almanacs. For decades, I’ve enjoyed the Farmers’ Almanac and Jeffrey Hirsch’s Stock Trader’s Almanac . I’ve got a large collection of these going back to the 1980s. They are full of statistics and trivia about what markets have done in the past. Did you know that January tends to signal what will happen for the year? “Down” Januarys have led to a down market for the year with an 86.8% success rate since 1950, according to Hirsch’s almanac. (The market rose this January by 7.9%.)
22
October 2019
Made with FlippingBook - professional solution for displaying marketing and sales documents online