What happens in Bear Markets?

by | Jun 9, 2012 | Asset Management, Point and Figure

As a New Jersey Financial Advisor, I get a lot of calls from concerned investors about what to do in bear markets. In bear markets: during my time as a money manager, many times (but not always) we see HIGH volatility, violent moves, but — ultimately — we really see no progress.

I received an email from a client here in Monmouth County, NJ, who was curious why her account did not go up when on Wednesday when the market was up nearly 300 points. While I explained her account is mainly out of harm’s way in the money market, it got me thinking.

All equity funds (stock mutual funds) in general are now very oversold. But over the last eight years we have seen these funds become even MORE oversold. These funds have not turned up yet.

The week of May 29 the Dow Jones was DOWN 336 points.
The following week (at the time of this writing) the Dow Jones is UP 334 points.
Two weeks of violent moves both UP and DOWN, and we are right where we stood a few weeks ago. All we did was create more damage on the charts.

Remember, when the trend is bearish (like now), we will often see violent moves up AND down in the market. Sometimes, your financial planner will simply be treading water, not really going anywhere. And, often, investors get “conditioned” to a period of volatility, but overlook the steady grind down of a negative move in the market.

WHY could this market be heading lower?

  • Greece: their possible “eviction” from the euro could spark other countries (Ireland, Italy, Portugal, etc) to do the same.
  • Spain: there is no bailout fund big enough to rescue the financial system in Spain. Spain has the potential to be the great abyss we worried about when Lehman collapsed. A potentially very big deal.
  • Fear the Euro may be dead: pushes people into dollars (a strong dollar could be bad for stocks).
  • There are so many indicators now showing the United States inching very close to a recession. I am stunned so many deny this possibility. it may be referenced as a “soft patch” or a “stall in the economy.”

Lotsa reasons to be worried. But know this: the charts have a good knack for letting us know things are moving (in either direction UP or DOWN).

But know this: WHEN the charts change, we WILL change

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

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