A Bear? Or A Bull? It Really Doesn’t Matter

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The most common topic on Wall Street is about a Bear Market rather than a Bull one. Why?

Because a bear growls constantly while a bull is always quiet. Also, the former is crazy about animal (including human) meat, but the latter eats only vegetables (like monk). Therefore, a bear is a violent attacker while the latter is a patient worker for farmers in underdeveloped countries.

We did a good job of naming a bear market when the market dives sharply (and it’s exciting), while a bull market when the market moves steadily and smoothly upward month to month year after year (and it’s boring).

As a consequence, the media and commentators are fond of reporting about Bears not Bulls, so that most investors tend to follow Bearish Stories than Bullish Ones, in turn, to lean more shorter terms by chasing sweet bear-market recommendations, and hot-tipped riskier equities in short terms.

As a long only and momentum/trend investor, I don’t care about any specific market, resulting in my diligent analysis with the market data, and sharpening my investing strategy in the long run as well as my trading in very short terms.

The focus of the article is to bring some issues about the characteristics of the bear markets in general, and the somewhat counterproductive Bias of some readers who prefer the bear markets in particular.

With Friday (Sept. 9th)’s advance, the major averages finished higher for the week, breaking a losing streak in the previous three weeks. This is a crucially important momentum (M#1). To get a trend we need more Momentums (M#2, M#3…) Bond rates moved up: The 10-year Treasury yield (US10Y) advanced 4 basis points to 3.33% and the 2-year yield (US2Y) climbed 7 bps to 3.56%.

Fed’s rate-hike schedule is occupied in the mind of most investors this month to expect another 75 bps or 50 bps which depends on coming CPI numbers.

The Current Bull Market

The current Bull Market, started on March 9, 2009, has run for thirteen years and six months (or 4,930 days), as of Friday (September 09, 2022), gaining 501.2% (five times+) from 676.53 to 4,067.36.

It certainly looks like a huge diving-and-flying BOAT moved from the bottom of Colorado River to the Top of Grand Canyon. What happened was the BOAT lifted all kinds of boats – big or small -: All investors picked their fair shares with their Portfolios in long terms (3 to 5 years) or diligent trading in short terms (between a few seconds and a few sessions) or both. No matter what kind of investors you are, we all become winners.

How to Determine a Bear Market

Most articles analyze Bear markets, starting with the Bull market first, and then look in Bear markets. The problem with this approach is that a bear (starting from just One day) is tentative until sustaining for a certain period (i.e., six months or longer). The approach here is the opposite: Determine a Bear first, and then a new Bull is born.

Do you agree with me about the Title? If you don’t, you no doubt are not alone. Because most investors believe the current bull market would be for only three years and eight months (from 12/17/2018).

Dating a Bottom and a Top in the stock market has not been made by any authority. The National Bureau of Economic Research (NBER) has the Business Cycle Dating Committee which decides a Trough and a Peak on Business Cycles. We, however, do not have a counterpart of the NBER for the stock market yet.

There are three stock Market indexes: The Dow Jones Industrial Average (the DOW), the Standard and Poor’s 500 (the S&P 500), and the Nasdaq composite (the Nasdaq). The DOW has only 30 large industrial companies, the S&P 500 is tracking the performance of 500 large companies, and the Nasdaq was initially an acronym for the National Association of Securities Quotation, and it was founded in 1971.

The S&P 500 is used to determine a Bear market and a Bull market follows. The stock market has had a long-run upward trend historically: The upswings (Bull markets) are normal. The downswings (Bear markets) are very sharp and relatively short (anywhere between six months to one year or so).

Hence, long-term investors are much better off, by riding the markets (bear of bull), fully invested with well-diversified portfolios:

1) The index ETFs (Vanguard and Charles Schwab) have been the most reliable long-term investment products which are most cost- and tax-advantaged. The portfolios with them had a good-performance track record until 2020.

2) Under the current administration’s fiscal policy, the popularity of Index ETFs has gone down significantly because the ESG supports the selected segments and businesses favorably so that many green companies have been popped out.

3) As a result, professional money managers and individual investors are forced to select individual stocks and the selected industries. But in the recent months, the Index ETFs are recovering their positions as Index ETFs trading volume is increasing.

4) Longer-term investors and younger (than 60) investors must consider Index ETFs or some passive ETFs to set up the traditional (60/40 or 70/30 of stock ETF and Bond ETF) (as shown in four portfolios below).

The Bear-Market Criteria

When the stock market drops by a minus 20 % (-20%) we call it a market correction. When the market decreases more than -20% we said it hit Bear market territory. When the Bear market situation continues for six months or longer, we are in a Bear market. We ignore intraday levels. We count only closing prices.

There were three cases when a clear down swings from 03/09/2009 to 09/09/2022:

· Case 1: 2,929.67 on 09/17/2018 (T), 2,416.62 (B) on 12/17/2018, and 2,939.88 on 04/22/2019 (T+)

· Case 2: 3,380.16 on 02/10/2020 (T), 2,304.92 (B) on 03/16/2020, and 3,397.16 on 08/17/2020 (T+)

· Case 3: 4,766.18 on 12/31/2021 (T), 3,636.87 (B) on 06/17/2022, and 4,130.29 on 07/29/2022 (T+)

Note: T, B, and T+ are Top, Bottom, and the date when surpassing the previous Top, respectively.

Case 1:

The S&P 500 fell -17.5% and four months later recovered. David Brett analyzed intraday values that were too volatile. This case didn’t make a Bear market in terms of closing figures.

Case 2:

The S&P 500 sled -31.8% and five months were taken to surpass the previous Top. The decreasing-amount criterion (-20%) was satisfied but the length criterion (six months) was not.

Case 3:

As we witnessed, the intraday movements of the S&P 500 sank several times below -20% but shot above -20% not only Friday (05/20/2022) but also Thursday (05/19/2022).

Finally, on 06/17/22 the S&P 500 sank -23.7%, but stayed only one month and 15 days when it rebounded on 07/29/2022, closing at 4,130.29.

Our dear Bull is alive at this moment, according to the above criteria.

The Market Perspective

The Bear-market claims are somewhat mechanical with arbitrary assumptions. Therefore, most investors are better off not paying attention to it.

What are the market perspectives at the juncture of the Bear-market surface now? The one-sided market of either being extremely bearish or bullish is not stable. Smooth market clearing requires that bears and bulls are well-balanced.

Inflation, recession, and bear market are three pillars in recent headline news. Not only these three are interrelated to one another but also the Russian War and the Fed’s interest-hike campaign add more uncertainties.

My market view is optimistic because at any moment we don’t be worry-free. We have to climb the worry wall. Inflation looks topping in recent months or already. A recession seems not to be imminent. The impact of the war abates.

Four Portfolios with four Vanguard Exchange Traded (Mutual) Funds (ETF): VTI (Total Stock Market), VXUS (Global Stock Market except U.S.). BND (Total Bond Market), and BNDX (Global Bond Market except U.S). Vanguard ETFs are most efficient and lowest cost.

Considered are only three financial assets: Stock. Bond, and Cash. Online Savings is the best vehicle to handle your cash. Marcus (Goldman Sachs Bank), for example, has a high APY (1.7%) with no minimum balance and easy restrictions.

Age, the size of financial resources, and the level of risk tolerance are important to cultivate your investment goal and strategy. As we age the investment horizon gets shorter, meaning that older investors are more difficult than younger ones to wait for market recoveries.

Age is the most important element.

Portfolio A (50 and younger or for your younger family member): VTI (55%), VXUS (15%), BND (20%) and BNDX (10%)

Portfolio B (51 to 65) VTI (30%), VXUS (20%), BND (30%), and BNDX (20%)

Portfolio C (66 to 75) VTI (25%), VXUS (5%), BND (25%), BNDX (5%), and CASH (40%)

Portfolio D (76 and older) VTI (10%), VXUS (5%), BND (10%), BNDX (5%), and Cash (70%)

The Concluding Remark

For investors there are two camps: The Bull camp and the Bear camp. Setting well-diversified Portfolios in the long run (5 to 7 years) belongs to the former while short-sales investors are in the latter. I recommend staying in the Bull camp all the way, not changing the camp.

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