This bear market is only just started

I am going out on a limb here this morning. I am moved to do so out of a concern for all the nice people out there who are not clients of our management firm and are presently left swinging in the wind of the current bear market just getting started.
I know. Your advisors have assured you that long term equities go up and you should not worry about “short term volatility”. But this is worse than a load of manure. Manure at least, helps things grow. Bear markets and long always investment advisors only help capital shrink, frequently by a lot. And this is after all, your hard-earned savings we are talking about. What kind of wilful blindness and self-serving lethargy moves advisors to leave clients fully invested through the contraction of each business cycle? It is actually scandalous. And to think that most advisors are paid handsomely for this dis- service.
For the past couple of years, I have been writing and speaking about the looming threats that were building in the credit markets. “Juggling Dynamite” released in April 2007 looks at these issues in detail. Most importantly I have been trying to explain to people why they ought to care about these threats and how the fall-out could harm them financially. Time after time, I have appeared in national media trying to warn people of the risks. Time after time, people have listened intently and then followed up with the hopeful comment, “but the buy and hold crowd should be okay right?”
So let me state this once again as clear as I can be: “NO THE BUY AND HOLD CROWD SHOULD NOT BE OKAY!” Unless you plan to invest a lump sum now and slip into a comma for the next 30-50 years, you should not be buy and hold in the first place. Most people cannot afford to wait decades before they look at their savings. Most people get lump sums as they go along through their life, and often the bulk of our life savings amass when we are over 40 or 50. Time is of the essence always. We cannot afford to blindly ride the market roller coaster up only to ride it blindly down again. Life is too short. Making market gains is a pointless, deluded activity without a discipline for keeping them.
The present bear market started in July 2007 and has been stealthily eating away at passive portfolios over the past 6 months. Six months into a bear market is typically when the worst losses begin in earnest. The bottoming process is likely to take the next several months not days or weeks. It is still not too late to protect your savings.
Remember market tops are reached when every last sucker has been sucked in. It appears that this cycle, the top was hit last July. Once all the buyers have bought there is no one else to support the pyramid scheme and selling begins in earnest. It is no laughing matter. Financial losses cause real psychological, emotional and physical pain to investors as marriages break-up, suicides rise, and lives are damaged.
How bad could things get from here? It is impossible to know in advance, but equity losses of 20-30% would not be bizarre or unusual from here. It would also be common for such losses to take the next economic expansion of 3-5 years in order for capital to recoup its value.
Everyone that has taken the “buy and hold” sleeping pill needs to ask themselves this: how will you react, feel, fare, if you suffer capital losses in the -20%+ range over the coming weeks or months. And if you conclude you would not be ruffled or annoyed– by all means sleep on. For the rest of you who did not realize you signed up for this kind of a reckless rollercoaster ride, it is still not too late to wake up.

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One Response to This bear market is only just started

  1. Anonymous says:

    I have to totally agree with your post… by the way, I found your blog while reading comments on The Big Picture today… it's funny, after my posting regarding Barry R. being a realist, I land here and see your tag line. 🙂
    Anyway, the reason I write… over the years, I come to see “Buy and Hold” as one of the greatest marketing ploys in the history of advertising. To that end, every time I hear this spin, I respond (and I am not a smart ass… excuse my French), don't you mean “Buy and Hope”, and then I go on to explain my thinking, for those who will listen. Just my two cents. Please keep up the good work. Have added your blog to my financial reading list.
    Take care.
    P.S. I am going to try to post some useful “data porn”, to use Barry's missive here and on The Big Picture that I have compiled on the average length/breath of past recessions, avg. length/breath of past market corrections, and the length/breath of past bear markets. Past history, I know, and just averages (which can nail you when you get a flyer), but still good to have on hand these days.

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