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Bear Market Investing

Mar. 09, 2018 6:20 AM ET21 Comments


  • Poses the three questions investors should ask themselves about bear-market investing.
  • Discusses one way to time the market and considers the inherent difficulties of market timing.
  • Considers different approaches to bear market investing.
  • Looks at the differences between the most recent bear markets.

There is probably more disagreement about how to invest in stocks during a bear market than about anything else in investing. The disagreement centers around three fundamental points.

First, is it better to stick to the same strategy in a bear market as in a bull market simply because it’s impossible to predict when a bear market is going to start or end, and because you don’t want to miss the bounce? Or is it better to use some sort of market timing signal to switch strategies?

Second, do you put a significant portion of your money into cash or bonds or a hedge, or do you stay just as long as you were during the bull market?

Third, if you stay long, do you switch strategies? This depends on the answer to a related question: Can you learn anything about future bear market strategies from past bear markets, or is every bear market different?

I’ll tackle these questions one by one.

1. Market Timing

First, market timing is difficult and often unreliable. But the anonymous author behind the brilliant Philosophical Economics blog (his Twitter handle is Jesse Livermore, the name of a legendary investor of the early twentieth century who made and lost millions and committed suicide in 1940) came up with a terrific method. It’s well worth your while reading his post In Search of the Perfect Recession Indicator.

Basically, the strategy is to go long unless the unemployment rate is rising and the price trend is falling. Unemployment is rising if the reported rate is above its trailing twelve-month moving average and price trend is falling if the S&P 500 is below its trailing ten-month moving average. “Livermore” found that this indicator beats all others over the period from 1930 to 2016.

So let’s take a close

This article was written by

Yuval Taylor profile picture
Weekly evaluation of thousands of stocks based on sound financial metrics.

I am the author of Zora and Langston: A Story of Friendship and Betrayal, as well as other books. In my spare time I invest, primarily in microcaps; investigate investment conundrums; and write about my investigations on Seeking Alpha and on my blog, http://backland.typepad.com/investigations.

I offer a subscription service, The Stock Evaluator, which sends out weekly rankings for close to 10,000 stocks and also tracks my own portfolio; you can reach it here: https://seekingalpha.com/author/yuval-taylor/research.

I'm proud of my investing track record. In 2016, I made 45% on my investments; in 2017, 58%; in 2018, 14%; in 2019, 16%; in 2020, 105%; in 2021, 73%; and in 2022, 22%. 

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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