23 May 2022
Advice from a Wyomingite on how to face a bear (market)
In our wild square space, we call Wyoming, bear encounters aren’t uncommon, bear attacks are less common, but not unheard of. Approximately 14,400 miles of the northwestern region of Wyoming is considered bear country. You may have seen pictures of female grizzly #399 and her four cubs, or videos of “intelligent” people taking selfies at an unsafe distance from the 400-600 pound “teddy bears”.
But what do you do when a bear attacks? The National Parks Service recommends for you to remain still and stay calm. Do not drop your pack or run, move away slowly. If it comes down to it, play dead.
What does this have to do with the markets? Everything. Bears are no joke, and neither is a down market.
What is a bear market and are we about to encounter one?
The technical definition of a bear market is a pullback of 20% or more from a prior market high. As I write this today, the S&P 500® Index is knocking on the door, while small cap stocks (Russell 2000 Index) and technology stocks (NASDAQ) have blown through this threshold. One does not have to look far for reasons driving these negative returns – 40-year high inflation, a Fed behind the curve on inflation, a war in Ukraine, and all of the supply chain challenges. After our recent market highs in January, markets have been on the decline, and it appears the bears are on the loose.
Whether it is an 8-foot grizzly or a Bear Market, these tips can help you survive the encounter:
1. Stay calm
Don’t panic. Take a deep breath and assess your situation. Look at your investments, check in with your advisor and your investment goals, and remind yourself of your long-term investment strategy. You and your advisor created a financial plan for moments like this. Separate your emotions from your investment making decisions.
2. Don’t drop your pack (investments) and run.
In keeping with our wild animal analogy, the bear may just be standing on its legs to get a better look or smell. Often, they will bluff their way out of the encounter by charging and then turning away at the last second. Running in these situations can have worse effects in both the short- and long-term.
This can be true for the markets as well. There’s no rule for how long a bear market will last. Maybe in a short month or two they could turn around, maybe longer. Historically, the duration of a bear market is MUCH shorter compared to bull markets. But the most important thing to remember is that history shows that the markets rally and rebound. You don’t want to be running and be without your pack.
The chart below shows how missing out on even a few of the best days can be financially painful. So don’t poke the bear, if you feel you must make some sort of action, move slowly. The bear will eventually go away, even though it may seem painfully slow.
3. Play dead
Don’t make sudden movements and rash decisions when the encounter first occurs. You don’t want to make a startled decision and jump out when that happens. When it comes down to it and you just aren’t 100% sure what to do and the bear keeps coming, play dead. Laydown with your pack on your back and wait it out. When a downturn is occurring, it is almost always best to stay invested. Otherwise, as the chart below shows, you could miss out on significant returns during the recovery. While it may feel good to sell, the harder decision is when do you get back into the market? The forest ranger is rarely around to give you the all-clear sign. As shown earlier, just missing a few days can impact your long-term returns.
Closing thought
Market downturns are eventually followed by market rebounds. And as history shows, being patient pays off. Take a deep breath, stay calm and stay diversified. It is easy to say, “buy low, sell high”, but staring down the bear in the moment is not easy.
P.S.
Advice from a native Wyomingite: When visiting the real Wyoming bear country, keep your distance from all wildlife. Do not risk your life for a one second selfie. Always be bear aware and carry bear spray. Avoid bears at all costs in early spring when they emerge from hibernation and any time when cubs are present. Do not keep food in your tent/camp area unless there is a bear safe container. And buy low, sell high.
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| INDEX | INDEX DESCRIPTION |
| S&P 500 | Represents US large company stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ. |
| Russell 2000 | A small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. |
| NASDAQ Composite | The Nasdaq composite is an index of more than global 3,700 stocks. |
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Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods.
The National Parks Service: https://www.nps.gov/subjects/bears/safety.htm
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