[james4beach]

I've been thinking about this a lot.
Who cares if it's a bear market, if anything that's the time to invest and grow.

If you can succeed in tough times, you can excel in good times.

I would just be cautious to not get overly aggressive. One problem with bear markets is that they wear down people, emotionally.

I was recently reflecting on the Gen-X experience with the 2000 bear market. It was really rough on the Gen-X workforce. They had high expectations coming through the late 1990s, then entered a stretch of NO market returns for 12-13 years. If you look at the historical data, you'll see that stocks underperformed the risk-free rate (t-bills) for 13 years! And with tons of volatility.

It wasn't just a bad stretch in markets, but a very long bad stretch.

So I think as we enter a rough market, we should keep in mind that we don't know how long this bad stretch will be. It could be 1 year or 10 years. Getting overly aggressive could be a killer, because after a few more years of intense losses, an aggressive strategy could become catastrophic.

My own solution to this is to focus on strict, regimented, methodical behaviour. I'm trying to develop patterns that make my investment process boring

• sticking with the asset allocation plan
• always obey the plan (buy what's underweight for example)
• don't try to time or predict the market
• as much as I'm tempted to, don't improvise on the fly
• keep my expectations of returns low

I think there are other psychological benefits of letting the asset allocation plan dictate your actions. A mechanical or systematic approach frees you from emotional uncertainty, and also frees you from regret. You're not trying to time the market and there is no burden on you to watch the news and "tactically adapt". Your only duty is to maintain discipline and stick with the strategy, including rebalancing.

 

[MrMatt]

I would just be cautious to not get overly aggressive. One problem with bear markets is that they wear down people, emotionally.

I was recently reflecting on the Gen-X experience with the 2000 bear market. It was really rough on the Gen-X workforce. They had high expectations coming through the late 1990s, then entered a stretch of NO market returns for 12-13 years. If you look at the historical data, you'll see that stocks underperformed the risk-free rate (t-bills) for 13 years! And with tons of volatility.

The tech boom was awesome, I know a lot of paper millionaires that lost it.
FYI during that time (late 90's until 2010's) I invested in the BMO dividend fund.

BMO Dividend Fund - Mutual Fund - BMO

The BMO Dividend Fund's main objective is to achieve a high level of after-tax return, including dividend income and capital gains. Start investing today.

www.bmo.com

 

[james4beach]

The tech boom was awesome, I know a lot of paper millionaires that lost it.
FYI during that time (late 90's until 2010's) I invested in the BMO dividend fund.

Nice choice being in the BMO dividend fund.

When you say "was awesome" are we on the same page here, or do you mean something else? I was in university with people who had started out at Nortel. They lost their jobs and their NT options too... I know very few people who got through that period successfully.

 

[james4beach]

For what it's worth, here are historical annual returns from the Stingy Investor Asset Mixer using a 50/50 allocation similar to the Couch Potato:
20% TSX, 20% S&P 500, 10% MSCI EAFE, and 50% bonds

1999 : +10.6%
2000 : +4.4%
2001 : -1.4%
2002 : -4.3%
2003 : +11.3%

Really not too bad at all. Many people did much worse during those years.

 

[cainvest]

I know very few people who got through that period successfully.

I know many people that did well (a few did excellent) in the tech 2000 bubble. Most knew it was going to burst.

 

[londoncalling]

Edited your post slightly to present an alternative outcome.

Good point. Sure, I am curious: what are other credit indicators can one look at?

One I'm aware of is high yield spreads versus treasuries. Any other good ones?

This may become especially important as QT accelerates through this year, especially after September when if the Fed really drains liquidity out of the system.

I always viewed the VIX as primarily a sentiment indicator however, it does make sense that it would also act as a credit indicator as overall credit strength takes a lot of fear out of the market. An increase to 30 year amortization and yield spreads are ones that I look at now again as I find them easy to obtain and understand. Perhaps it is just more familiar.

@Covariance is correct in that confirmation of these indicator is not a guarantee of recession. A lot of folks are saying it's here or on it's way. Even if we have a recession it may be quick and relatively painless. Things don't usually go up continuously forever. Like Matt said no need to change the plan. As such my cash weighting is still within allocation but growing.

 

[londoncalling]

Early Gen Xers definitely felt the brunt of the tech wreck especially for those that got decimated by job loss, new home purchase and losing money in tech stocks. For later Gen Xers the job and equity markets had mostly recovered. As a result they got to enter the workforce and start their retirement savings in a flat but calmer environment.

 

[Covariance]

That's a very good list! I would add to the list, to keep an eye on emerging market bonds and EM currencies as situations like dollar strength can result in forced deleveraging and plummeting EM. We seem to be getting a bit of that happening right now but it's too early to tell.

Absolutely. That is a very good point.

 

[james4beach]

Futures are plummeting again, though I'm not sure how often the overnight futures carry through to regular hour markets.

 

[KaeJS]

Futures are plummeting again, though I'm not sure how often the overnight futures carry through to regular hour markets.

They definitely carried over, and they got even worse =)

Last I saw from last night was -0.92%
Now I'm seeing -1.55%

 

[MrMatt]

Futures are plummeting again, though I'm not sure how often the overnight futures carry through to regular hour markets.

I don't pay attention to that crap.
Don't care what is happening to stocks day by day.

My lumber mills are still cutting. People are still buying off Amazon, people still give Google all their ad money.

The fascination of watching all these short term fluctuations isn't my style at all.

 

[londoncalling]

Daily market moves are interesting to watch if one has the time and inclination. Longer term a 1 day price change usually has little impact. Longer term trends and performance are what matter. We also have to be reminded that today's prices reflect the expectation of future results.

I missed an opportunity to put in an order for CNQ this morning. Another opportunity may come along and if it doesn't that's ok too. I find it strange that one talking head said the drop in oil today is a result of Biden's announcement of putting a hold on the gas tax. Not sure how a tax holiday would hurt corporate profits. I could see how an increase in tax would hurt these companies.

Hmmm... lower gas price = more consumption = more revenue. What am I missing?

 

[Gator13]

Stocks could get a boost over the next week or two when a lot of funds and ETFs rebalance.

 

[londoncalling]

Interesting thought. What shifts do you expect to see occur? Would it also mean that some stocks would also be sold off as part of the rebalance?

 

[Gator13]

With markets down, I would expect stocks to rise. I would think balanced funds will need to trim fixed income positions and buy equities to balance. The recent uptick could be partially attributed to this.

 

[londoncalling]

Thanks for the reply. with so many etfs out there today it was hard to determine what you meant. Definitely for the large vanilla balanced funds we may see money go into stocks. I don't follow bond markets but I thought they took a hit recently as well. As to all equity etfs I am not sure if there is much for the market to gain from a rebalance. I also thought that the rebalancing had a more varied schedule. Interesting. As you can tell I know almost nothing about etfs. The only one I hold is VEQT in an RESP.

 

[Gator13]

I have read a few articles about it in the past, but I don't know the exact rules/guidelines that Funds or ETF's with an allocation mandate follow. I hold ZUT and VRIF. No mutual funds. Like you, I don't follow bonds either.

 

[james4beach]

The summer months are kind of a yawner. Wall Street people and institutions (mutual funds, hedge funds) are all pretty much on summer break. There's not much economic news and I don't think one can guess where markets will move.

I think when everyone gets back to work in September, things can potentially get more interesting. But the summer months -- hard to take it seriously. My guess is that markets will whip around, on low volume, and do weird things for July & August.

Nice to see both the TDB8150 and TDB8152 in USD around the same interest rate now! I think they're 1.25% and 1.20%

 

[londoncalling]

I agree that volume will be down and markets will maintain its bumpy ride over the summer as typically things are quieter. However, like sell in May (for the same reason) some of these theories are starting to become outdated. In our current interconnected world, data is available immediately and people can trade from almost anywhere; unlike the days of yesteryear when brokers would summer at the cottage for several months and perhaps pick up a paper once a week. A few things that will not be quiet over the summer are employment and inflation data. Obviously, everyone will be watching interest rates with great anticipation. As such we may remain in a low volume bear rally over the summer and then come fall volume and direction will pick up. another thing to consider that doesn't get much attention in Canada is the US midterms impact on markets. Typically there is a selloff heading into the election and then a bounce up in the following quarters. This is often attributed to uncertainty leading up to the election. Not sure if that will happen this time.