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.
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.
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.
Past performance is no guarantee of future returns. Performance discussed represents total returns that include income, realized and unrealized gains and losses, but gross of advisory fees. Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any types of securities and no investment decision should be made based solely on information provided herein. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for an s investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. All performance results should be considered in light of the market and economic conditions that prevailed at the time those results were generated. Before investing, consider investment objectives, risks, fees and expenses. Frontier may modify its process, opinions and assumptions at any time without notice as data is analyzed. Calculations by Frontier unless otherwise noted.
Information provided herein reflects Frontier’s views as of the date of this newsletter and can change at any time without notice. Frontier obtained some of the information provided herein from third party sources believed to be reliable, but it is not guaranteed, and Frontier does not warrant or guarantee the accuracy or completeness of such information. The use of such sources does not constitute an endorsement. Frontier’s use of external articles should in no way be considered a validation. The views and opinions of these authors are theirs alone. Reader accesses the links or websites at their own risk. Frontier is not responsible for any adverse outcomes from references provided and cannot guarantee their safety. Frontier does not have a position on the contents of these articles. Frontier does not have an affiliation with any author, company or security noted within. Frontier reserves the right to remove these links at any time without notice.
Exclusive reliance on the information herein is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell any securities, commodities, treasuries or financial instruments of any kind. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, investment or tax advice. Frontier does not directly use economic data as a part of its investment process.
Frontier provides model strategies to various investment advisory firms and does not manage those models on a discretionary basis. The performance and holdings of model strategies may vary from strategies managed by Frontier.
Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. The estimates, including expected returns and downside risk, throughout are calculated monthly by Frontier and will change from month to month depending upon factors, including market movements, over which Frontier has no control. They are only one factor among many considered in Frontier’s investment process and are provided solely to offer insight into Frontier’s current views on long-term future asset class returns. They are not intended as guarantees of future returns and should not be relied upon in making investment decisions.
|Represents US large company stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ.
|A small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
|The Nasdaq composite is an index of more than global 3,700 stocks.
Frontier’s ADV Brochure and Form CRS are available at no charge by request at email@example.com or 307.673.5675 and are available on our website www. Frontierasset.com. They include important disclosures and should be ready carefully. Frontier Asset Management is a registered investment adviser with the U.S. Securities and Exchange Commission; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Additional information about Frontier and its investment adviser representatives is available on the SEC’s website at www.adviserinfo.sec.gov.
Frontier’s use of external sources should in no way be considered an endorsement. Reader accesses sources at their own risk. Frontier is not responsible for any adverse outcomes from sources provided and cannot guarantee their safety. Frontier does not have a position on the contents of the site sources. Frontier does not have an affiliation with any author, company, or security noted within. Frontier reserves the right to remove these links at any time without notice. It is generally not possible to invest directly in an index. Exposure to any asset class or trading strategy or other category represented by any index is only available through third party investable instruments (if any) based on that index.
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