Are We Near the Bottom of Bear Market 2022? Tips ...

We have said many times that you cannot call the market, you cannot ‘bottom fish’ i.e., second guess when the low point for markets will occur.

• Bull Market:  This is where investors and commentators (the bulls) have positive sentiment that markets will grow.
• Bear Market:  This is where investors and commentators (the bears) have negative sentiment that markets will fall.

Any article we read today in the US by Michael Sincere sets out the 9 stages of a ‘Bear’ Market:

1. Failed stock market rallies.  Markets keep bouncing up then back down.
2. Low volume rallies.  Whilst markets rise there are low volumes of trading meaning that big investors such as fund managers of major pension and investment firms are not ‘buying’ the rally.
3. Graphs look bad.  When all graphs on prices, confidence, sentiment, inflation, interest rates and the economy are negative.
4. High volume sell-offs.  Markets are falling and there are large volumes of trading meaning that big investors such as fund managers of major pension and investment firms are selling stocks.
5. Collective funds move to cash park.  Smaller investors i.e., consumers investing in collective funds such as stock ISAs, pension funds and insurance investment funds are switching from markets to cash park.
6. Panic.  More investors exit markets as they hit their tolerance to losses.
7. All the economic and political news is bleak.
8. Bulls go quiet.  Investors and commentators that are usually ‘talking up’ growth have gone quiet.
9. Capitulation.  Markets have fallen up to 40 and maximum 50% and we are all streaming out of markets to protect from further losses. 

For equities, we believe we are somewhere between stage 8 and 9 using Mr Sincere’s scale.  We are all adjusting to higher inflation, higher interest rates and likely higher taxation.

For bonds/gilts i.e., government and corporate borrowing.  This is what happened recently to the UK Gilt (Bond) market and now fund managers are ‘piling’ back into gilt and corporate bond markets suggesting this is the best time to buy them in the last 10 years.

Taking Action?

We have suggested you cannot ‘call’ the market.  It is impossible to ‘bottom fish’.  Therefore, if we are there or thereabouts at stage 8-9, we suggest now is as good a time as any to make use of:

Pound Cost Averaging:  Hold money in ‘cash park’ is damaging because your cash is earning lower interest than inflation at c10% pa.  You can never make this back.  Therefore, drip feed your investments into or back into markets, spreading this move back to markets over a year or so.  This way you will buy in at an average price over the year whether markets fall further (you buy even more cheap units each month) or recover i.e., you get some growth.

Opportunity Cash:  You cannot time the market but investing when stock markets have fallen 20% to 30% depending upon sector is likely to be a wise move in the medium to longer term.  Markets will recover.

Diversify:  With global recession not seen since the 1980s, we have been recommending that you spread your investment portfolio as wide as possible.  Do not focus on sectors e.g., Europe, UK, North America, Japan et al.  but focus on spreading portfolios as wide as possible, some will bounce up others may not, but you have spread your risk.

There will be a bounce, it is just a case of when.  We suggest it may be 18 months away for equities so you may wish to consider drip feeding.

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