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, Random Roger (199 clicks)
Portfolio strategy, ETF investing, foreign companies
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I hadn't thought about it this way until I read this article in the NY Times, but the S&P 500 is down 25% YTD. In my video over the weekend the focus was obviously quarter end, but after a down 9% week it is down 25%. Wow.

That NYT article talked about dividend investing, why indexing has struggled, why active managers have struggled and so on. Dividend investing, via funds, probably means heavy financial exposure although some dividend funds have held up very well. Active managers, per the article, never saw this mess coming.

There was an element missing, which is simply to have less exposure. One point I tried to make about bear markets (before this one started) is that finding the few stocks that will go up while the market is going down a lot is very difficult. Sure, a portfolio of 40 or 50 stocks will have a couple of names that are doing well, but knowing what those would be ahead of time is a long shot.

A client asked me why "demand for equities is poor." I told him I don't spend a lot of time trying to figure out why, because being right is irrelevant for you managing your money or me trying to do my job. Someone will win the Nobel for figuring all of this out and I am happy to leave being right to them.

If you look back at the posts I put up in the summer of 2007 as the market was skipping around the 200 DMA, and then in Q4 when the market rolled over slowly (as it always does at the start of a bear market), when I said the bear had started I was just focused on the message of the market. It warned of trouble but did nothing (that I could see, anyway) to predict magnitude.

It appears, based on the NY Times article and this Barron's piece that I linked to yesterday, that too many people had no plan for defense. Raising a little cash early on is by far the simplest thing you can do. Hopefully you can remember what this feels like, how the market warned way ahead of time and how many pundits told us not to worry.

I can tell you first-hand that most people do not remember these sorts of things but hopefully you will. From the tough-to-remember camp is that bear markets end eventually. They end after the market drops a lot, when sentiment is lousy and there is no end in sight.

I can't make any case for this bear being over, and the market is a long way from demand being healthy, but this is exactly the time to plan for re-equitizing if you are defensively postured. It may be over a year away or just a few weeks, there is no way to know, but the fact that bear markets end should not be forgotten. That they occasionally end very loudly with big fast moves up should not be forgotten. It doesn't cost you anything to be open to the possibility that the market will confound everyone at a time when no one (including me) thinks it is possible.

Source: Getting Ready for... Anything