We're in a Bear Market. Here's How to Navigate It.
Editor's note: More volatility is coming, but you still have time to prepare...
The markets have been in turmoil all year due to various unique circumstances such as sky-high inflation, heightened geopolitical tensions, and ongoing supply-chain issues. And there's no clear end in sight to this rampant market volatility...
That's why Extreme Value editor Dan Ferris believes it's critical for individual investors to start preparing right now in order to avoid catastrophic losses...
In today's Masters Series, originally from the June issue of Extreme Value, Dan recaps how we arrived at today's bear market... explains why this unbridled market volatility we're experiencing will drag on for much longer than you expect... and reveals the steps you must take in order to survive this ongoing chaos...
We're in a Bear Market. Here's How to Navigate It.
The stock market has been falling for months. And it has now reached a critical juncture.
There's no denying it... We're in a bear market today.
What comes next and what you do starting right now could make all the difference between preserving and building substantial wealth... or losing a lot – or even all – of it.
That's why today, we're going to focus on making sense of the current market... and preparing for what's to come.
To do this, we'll dive deep into...
- Where the market is now.
- How we got here.
- Where we're headed next (a risk assessment, not a prediction).
- What to do about it.
"Who cares how we got here?" you might be asking yourself. "Just tell me how to handle what comes next."
I could... But that would be doing you a disservice.
Knowing history helps you understand the present moment... and can suggest what the future might hold. It's just as important to paint a complete picture of macro risks and opportunities as it is to dissect the individual companies whose stocks we recommend most months.
Without valuable insight from a careful study of market history, I might never have warned my subscribers in December 2021 that stocks were too expensive and that returns have always been lousy whenever valuations peak in the past. After that warning, we saw one of the most expensive speculative peaks of the past century followed by five straight months of downtrend, obliterating trillions worth of market value held by millions of investors.
And I might never have recommended that my readers hold plenty of cash, gold, silver, and even bitcoin (until we sold it last month). Cash and precious metals have dramatically outperformed stocks this year.
So instead of just telling you I have high conviction that we're already in a bear market, I'm going to show you how I arrived at that conclusion.
My goal is not to list historical events in chronological order, but to create a complete picture, like a road map. The relationships I'll discuss between past, present, and potential future events are much more important than their linear sequence through time.
Let's begin by assessing where we are right now in the stock market cycle...
A bull market is a sustained uptrend in stock prices that often lasts several years. Most mature bull markets are characterized by some amount of speculative activity in a particular sector, which can overflow into other areas of the market.
A bear market is a sustained downtrend of 20%-plus that usually lasts no more than about two years. The dot-com bust from 2000 to 2002 and the housing bust/financial crisis from 2007 to 2009 were the most recent bear markets.
If you study the way stocks have traded since the beginning of the year, it's clear that we've been in a bear market for months already. We've seen constant declines punctuated by sharp upward surges, with many more stocks declining than rising...
Although the S&P 500 has fallen since its January 3 peak and down days have been larger and more frequent, there have also been plenty of up days – some more than 2%. Any investor on Twitter has likely seen experienced traders tweeting about this "classic bear market action" over the past few months.
Another obvious sign of a bear market is the ongoing collapse of several speculative corners of the market, like crypto, cannabis, and technology plays such as those found in the ARK Innovation Fund (ARKK).
I don't care about the traditional bear market definition anymore. It's arbitrary. Why not a 19% or 21% decline to signal an official bear market has begun? The 20% rule feels like something cooked up by a financial writer, not a real investor.
So let's be clear. According to our research, the bear market we've been warning you about has arrived.
We study how we reached this pivotal market point for the same reason we look at a company's operating and financial history when we make new stock recommendations... We need to understand an event's history in order to fully prepare for it today and in the future.
We're in a bear market today for one simple reason: Bear markets always follow bull markets.
We just closed the book on one of the longest bull markets in history. It started in March 2009. The pandemic-induced market crash in March 2020 poked a seemingly lethal hole in it.
Good investing,
Dan Ferris
Editor's note: Dan believes that in order to make it through this bear market, it's crucial to not only be in the right investments, but also to avoid being in the wrong ones...
That's why he recently hosted a presentation to reveal the names of two well-known stocks that he says you need to sell immediately. Watch the full replay here...