The benefits of a bear market

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

The benefits of a bear market

Postby Rick Ferri » Mon Mar 17, 2008 10:36 am

This is a positive post.

I started a list below of the benefits of a bear market in stocks. Why am I doing this? To raise optimism, or rather, to remind people that the world is not ending and that this current financial crisis will pass. There are so many doom and gloom conversations being started on this forum that I felt the need to look past the short-term and reiterate the fact that all bear markets eventually end - and this one will too.

Here is a start. The benefits of a bear market are:

1) You can buy much more stock for the same dollar invested.
2) You learn what your true risk tolerance is.
3) More media attention on the markets means less media attention on the election.
4) Lower interest rates helps people buying homes or refinancing.

Please add your own POSITIVE thoughts on the markets or on the economy. Pessimists, please do not post. You have have plenty of doom and gloom conversations to post negativism.

Rick Ferri
User avatar
Rick Ferri
 
Posts: 7681
Joined: 26 Feb 2007
Location: Home on the range in Medina, Texas

Postby Hondo » Mon Mar 17, 2008 10:44 am

Bear markets help you to understand and appreciate asset allocation.
User avatar
Hondo
 
Posts: 174
Joined: 20 Feb 2007

Postby learning » Mon Mar 17, 2008 10:50 am

Another positive of a bear market:

When it ends, we're reminded, once again, that when doom and gloomers shout "this time it's different" -- it really isn't.
learning
 
Posts: 125
Joined: 7 Dec 2007

Postby gummy » Mon Mar 17, 2008 10:57 am

Things could be worser, eh?

Image
User avatar
gummy
 
Posts: 340
Joined: 12 Mar 2007
Location: Burlington, Ontari-ari-ari-O

Re: The benefits of a bear market

Postby ddb » Mon Mar 17, 2008 11:02 am

A bear market makes you appreciate high-quality short-term bonds, and reminds you that you probably shouldn't take on credit risk in your fixed income holdings.

A bear market greatly reduces the posts on this board asking about allocations to emerging markets, small-cap value, etc. (i.e. it quiets down the performance chasers).

A break market gives us a video like this (warning: explicit language).

- DDB
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB
User avatar
ddb
 
Posts: 5471
Joined: 26 Feb 2007
Location: American Gardens Building, West 81st St.

Re: The benefits of a bear market

Postby NoMoreInvestingExcitement » Mon Mar 17, 2008 11:07 am

Hi Rick:

Thanks for your optimistic list. In general I quite agree with you, at least for folks in the accumulation phase of their investing lives. Not sure you could convince a less-than-well-heeled retiree that a bear market is good for her, though.

Anyway, my further two cents:

RickFerri wrote:1) You can buy much more stock for the same dollar invested.


That's for certain. If you're in the position to sink some $ into equities then buying low definitely beats buying high, as long as you have the stomach for it. And speaking of tolerance...


RickFerri wrote:2) You learn what your true risk tolerance is.


Again, right on the money. As for me, I know my risk tolerance has been tested before so I know what I can take and what I can't. But for those who've never been there, there's no substitute for getting a true taste of a down market (changes those handy dandy risk tolerance questionnaires from purely hypothetical to something a bit closer to reality).


RickFerri wrote:3) More media attention on the markets means less media attention on the election.


Definitely in the short run, at least. Of course, it's bound to change the focus of the election, too. So, now when we see the candidates they'll be telling us this, that and the other thing about the economy and the financial markets, etc., instead of focusing on the many other issues out there that bear (pardon the pun) on the election.


RickFerri wrote:4) Lower interest rates helps people buying homes or refinancing.


You sure know more about this stuff than me, and I'd suppose without researching it, that it'd be true in a "normal" bear market. But, geez, I've been looking into refinancing for several months, and just when I thought mortgage rates would decline ... uh, no, they are rising. From the man on the street perspective, mortgage rates are pretty much SNAFU right now.

On the whole, however, I side with your larger point ... "this, too, shall pass."
Unlimited online financial info's great, but I'd rather my compass just kept working.
User avatar
NoMoreInvestingExcitement
 
Posts: 193
Joined: 3 Jan 2008

Postby G12 » Mon Mar 17, 2008 11:08 am

A bear market gives an equity investor who holds cash in their AA opportunities to buy cheaper stock without selling bonds or other investments. Low interest earnings are a small price to pay for this future opportunity.
User avatar
G12
 
Posts: 1287
Joined: 16 Apr 2007

Postby Robert T » Mon Mar 17, 2008 11:09 am

.
Four more…

The benefits of a bear market are…

1) …you can tax-loss harvest to improve future tax efficiency
2) …a first hand demonstration of which asset classes provide the best hedge for these types of market conditions
3) …a clear demonstration that smart people can often get it badly wrong
4) …opportunities to shift into ‘better’ investment products at lower cost (lower costs basis).

Robert
.
User avatar
Robert T
 
Posts: 1707
Joined: 27 Feb 2007
Location: 1, 0.2, 0.4, 0.5

Postby PiperWarrior » Mon Mar 17, 2008 11:09 am

Here is another one: Tax loss harvesting.
User avatar
PiperWarrior
 
Posts: 4068
Joined: 21 Dec 2007
Location: right on course

Postby Ria Rhodes » Mon Mar 17, 2008 11:09 am

..pushes more people to shop at Costco and WalMart of which I am a long term investor.
User avatar
Ria Rhodes
 
Posts: 85
Joined: 21 Oct 2007

Postby sschullo » Mon Mar 17, 2008 11:11 am

Rick,
I have a slightly different approach, it’s more personal rather than market driven:
1. Reassess employment opportunities, went back to school learned more skills and credentials to get promoted.
2. Worked a little longer and harder, took employment risks to earn more money and actually do what I love.
3. Reaffirmed my values of massive self discipline, stay the course, not panicking.
4. Acknowledging that only mistake I made was not diversifying and painfully learning from that one mistake that cost us big time.
5. Humbling acceptance that BALANCE in one’s life and the life of a country is good for long term grow and prosperity.

BTW, Interest rates for home buyers have actually went up slightly according to news reports. Of course, who believes the news?

Steve
sschullo
 
Posts: 1486
Joined: 1 Apr 2007
Location: Rancho Mirage, CA

Postby Joe S » Mon Mar 17, 2008 11:12 am

Corrections are good. Bear markets, hmmm. It all depends on the time frame.
You mean like the Great Depression? Or the 1970s?
Yeah, those were the days.
Joe S
 
Posts: 64
Joined: 13 Mar 2008

Postby billern » Mon Mar 17, 2008 11:13 am

bear markets keep the equity risk premium high. :D
billern
 
Posts: 886
Joined: 7 Dec 2007

Postby DRiP Guy » Mon Mar 17, 2008 12:01 pm

Shakes out weak hands and speculators. Nature's way of doing a little economic system pruning, which helps long term healthy growth.
User avatar
DRiP Guy
 
Posts: 2234
Joined: 20 Feb 2007

Postby ken250 » Mon Mar 17, 2008 12:09 pm

Maybe a slight variation on what's already been posted...

When the market hits a patch rough enough to generate the concern, fear, doubt, etc. that the current market is, valuations can get fuzzy...this revives the value premium.

Yes! 8)
User avatar
ken250
 
Posts: 1894
Joined: 26 Feb 2007
Location: US-101

Postby Levett » Mon Mar 17, 2008 12:19 pm

Don't know whether any retirees have yet to respond to Rick.

As a retiree, this market downturn (which, by the way, remains a blip compared to others I've experienced) has not affected our lifestyle in any way. There's just nothing like the predictability and reliability of annuity income together with all the other bells & whistles that make up an asset allocation plan.

Never underestimate safe sources of income. Bob U.
Levett
 
Posts: 3192
Joined: 23 Feb 2007

Postby Sbashore » Mon Mar 17, 2008 12:24 pm

Bear markets lower valuations, thus boosting future long term returns. Actually I was getting tired of my portfolio being in a narrow range of value. Now as it declines, I see things starting to move out of that range, so I know that the future holds a higher value portfolio for me.
Steve | Semper Fi
User avatar
Sbashore
 
Posts: 524
Joined: 20 Feb 2008
Location: Goodyear, AZ

Postby pkcrafter » Mon Mar 17, 2008 12:32 pm

dripguy wrote:
Nature's way of doing a little economic system pruning, which helps long term healthy growth.


Market's way of saying booga-booga.

Bob U. wrote:
Never underestimate safe sources of income
.

Never underestimate the power of risk. A market like this defines risk.

Paul
pkcrafter
 
Posts: 7528
Joined: 4 Mar 2007
Location: CA

Postby Easy Rhino » Mon Mar 17, 2008 12:36 pm

I'm looking forward to the opportunity to simultaneously tax-loss harvest AND fix up my asset allocation in my taxable account.
Easy Rhino
 
Posts: 2744
Joined: 5 Aug 2007
Location: San Diego

Postby retiredjg » Mon Mar 17, 2008 12:57 pm

Thanks, folks, for the tilt back to the positive side. And thanks to Rick for getting it started. jg
retiredjg
 
Posts: 16300
Joined: 10 Jan 2008

Postby DRiP Guy » Mon Mar 17, 2008 1:02 pm

Teaches flippers that homes are to live in, not to arbitrage by the dozen using other people's money.
User avatar
DRiP Guy
 
Posts: 2234
Joined: 20 Feb 2007

Postby InvestingMom » Mon Mar 17, 2008 1:04 pm

Yin and the Yang.

But seriously, it reminds us to appreciate it when times are good (and when you think about it, times are not so bad anyway...from a financial perspective...if you have done your asset allocation homework correctly.)
InvestingMom
 
Posts: 503
Joined: 20 Aug 2007

Postby Joe S » Mon Mar 17, 2008 1:04 pm

Optimists?
Pessimists?
Silly language.
How about realists?
Despite all the historical "scientific" studies and simulations, no one knows what will happen to the long-term economy as a whole, because we are, as is sometimes the case, in uncharted waters.
Though maybe you'd like to ask those losing their job or house if it's really such great news.
If being risk-averse is "pessimism", count me in. Based on political and economic realties, I figured this was coming, and starting in early 2001, put about half of my stock holdings into the Vanguard total international fund, then the rest to domestic indexes and stocks with a heavy tilt to oil and defense. I didn't guess perfectly, but it has done OK - so far.
I'm now invested 25% in the market, 75% in bonds and cash, with sufficient capital for retirement and SS, so it may be no big deal to me. (The wisest advice you can get is Swedroe's: Take no more risk than you have to. So I should probably be out of the market even more.)
Last edited by Joe S on Mon Mar 17, 2008 1:26 pm, edited 1 time in total.
Joe S
 
Posts: 64
Joined: 13 Mar 2008

Postby Blackhawkzone » Mon Mar 17, 2008 1:05 pm

6) money can be made on the short side thanks to inverse style etf's.
User avatar
Blackhawkzone
 
Posts: 295
Joined: 6 Mar 2007
Location: Chicago

No refuge in stock diversification

Postby Taylor Larimore » Mon Mar 17, 2008 1:29 pm

Hi Rick:

Today's Wall Street Journal lists the 1 year return for various Dow Jones Wilshire indexes.

+07.4% Total Bond Market

-03.2% Growth
-06.6% Large Caps
-07.6% Total Stock Market
-09.3% Mid-Cap
-10.9% Large Cap Value
-11.4% Value
-12.2% Small Cap
-15.2% Small-Cap Value
-22.1% Micro Cap

Another benefit: We learn that stock diversification does not protect against stock market declines (it can actually hurt). Bonds and cash are the best protectors.

Best wishes.
Taylor
User avatar
Taylor Larimore
Advisory Board
 
Posts: 19121
Joined: 27 Feb 2007
Location: Miami FL

Postby BigD53 » Mon Mar 17, 2008 1:29 pm

My Vanguard Target Retirement Income fund is down, what, 1.5%? Maybe 2%? :beer

No worries here, mate! I planned ahead. I knew going in, that my tolerance for risk was lower than a snakes' belly! :)

I have much more bonds than I do stocks. So, I may have to work 'till I'm 70. But things could be much worse. :wink:
User avatar
BigD53
 
Posts: 1041
Joined: 21 Jul 2007

Re: No refuge in stock diversification

Postby Opponent Process » Mon Mar 17, 2008 1:44 pm

Taylor Larimore wrote:Hi Rick:

Today's Wall Street Journal lists the 1 year return for various Dow Jones Wilshire indexes.

+07.4% Total Bond Market

-03.2% Growth
-06.6% Large Caps
-07.6% Total Stock Market
-09.3% Mid-Cap
-10.9% Large Cap Value
-11.4% Value
-12.2% Small Cap
-15.2% Small-Cap Value
-22.1% Micro Cap

Another benefit: We learn that stock diversification does not protect against stock market declines (it can actually hurt). Bonds and cash are the best protectors.

Best wishes.
Taylor


the good old fashion stock/bond allocation decision is the most important by far.
User avatar
Opponent Process
 
Posts: 5159
Joined: 18 Sep 2007

Postby vb » Mon Mar 17, 2008 1:45 pm

Some of my own personal goods from the last bear market...

1. Instead of dining out, had potluck get-togethers & bonded with friends through it
2. Appreciated the value of a bagged lunch
3. Instead of going out, stayed in and played old-fashioned board games
4. Reassessed my job, my career, my life
5. Made longer-term goals - applied for a masters degree program and just completed it, along with a career change; started playing tennis, won my first singles tournaments last year
6. Just learned more about investments, as the excesses were worked out
7. Worked out my own non-financial excesses
8. Enjoyed the weather and everytyhing else that is free

I was 25 when the last bear market hit.
vb
 
Posts: 113
Joined: 18 Feb 2008

Postby hamishdad » Mon Mar 17, 2008 1:47 pm

Bear markets give people the will to live long enough to get their money back.
hamishdad
 
Posts: 302
Joined: 21 Jan 2008

Postby Opponent Process » Mon Mar 17, 2008 2:02 pm

given the choice between bear market now vs. next year or next decade, we should take it now. the sooner, the better; a mathematical fact.

if you're in retirement, you're enjoying some nice bond returns.

so the system works, as long as you start early.
User avatar
Opponent Process
 
Posts: 5159
Joined: 18 Sep 2007

Postby Unormal » Mon Mar 17, 2008 2:07 pm

gummy wrote:Things could be worser, eh?

Image


Man, I love Gummy.
User avatar
Unormal
 
Posts: 321
Joined: 20 Nov 2007
Location: the middle

Postby gbs » Mon Mar 17, 2008 2:22 pm

A bear market enhances the value on an unexpected payroll increase :) !

gbs
User avatar
gbs
Wiki Admin
 
Posts: 558
Joined: 20 Feb 2007

Postby unclemick » Mon Mar 17, 2008 2:28 pm

:lol: :lol: :lol:

Fair winds or foul - the Norwegian widow always knows her current portfolio yield.

heh heh heh - :wink:
unclemick
 
Posts: 1319
Joined: 20 Feb 2007
Location: greater Kansas City

Postby FinanceGeek » Mon Mar 17, 2008 2:36 pm

Exiting 2008 I'll have done enough tax loss harvesting to not pay capital gains tax for many many years to come...

So how does one arrange to reclassify more "ordinary" income into capital gains to offset these? :-)
FinanceGeek
 
Posts: 754
Joined: 1 Jul 2007

Postby grumel » Mon Mar 17, 2008 3:09 pm

- less time spent on trying sucesless to talk people out of ridiculous asset alocations like 70% china funds
grumel
 
Posts: 1629
Joined: 30 Mar 2007
Location: Germany

Postby market timer » Mon Mar 17, 2008 3:12 pm

FinanceGeek wrote:So how does one arrange to reclassify more "ordinary" income into capital gains to offset these? :-)


You could work in private equity until the tax law is changed. I'm curious to know if there are any other feasible options.
User avatar
market timer
 
Posts: 4957
Joined: 21 Aug 2007

Postby bob90245 » Mon Mar 17, 2008 3:17 pm

Another benefit of a bear market:

If you've had your eye on buying a great mutual fund, but disappointed that it had closed its doors to new investors, chances are that it will soon reopen during this market decline as investors pull their money out in fear.
User avatar
bob90245
 
Posts: 6512
Joined: 19 Feb 2007

Postby jh » Mon Mar 17, 2008 3:31 pm

...
Last edited by jh on Sat Mar 29, 2008 3:27 pm, edited 1 time in total.
jh
 
Posts: 1767
Joined: 14 May 2007

Postby Rodc » Mon Mar 17, 2008 3:35 pm

Misery loves company; you have lots of people to commiserate with. :)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
Rodc
 
Posts: 9449
Joined: 26 Jun 2007

Postby jh » Mon Mar 17, 2008 3:40 pm

...
Last edited by jh on Sat Mar 29, 2008 3:27 pm, edited 1 time in total.
jh
 
Posts: 1767
Joined: 14 May 2007

Postby matt » Mon Mar 17, 2008 3:41 pm

You can laugh at the perma-bulls who said the good times would never end.
matt
 
Posts: 2305
Joined: 4 Mar 2007

Thanks, Rick

Postby haban01 » Mon Mar 17, 2008 4:00 pm

1.) First priority is to pick up more shares on the cheap side! Continue to invest through good and bad markets!!

This is actually my first "Bear Market" where I have some "skin" in the game, so to speak. I had a portfolio worth an once or two of gold back then!! This is great for the young investors that have started within the past 5 years!!

2.) Stay the Course, Don't just do something, Stand There!! (Jack Bogle


Best Wishes to all! This too shall pass!! :shock:
Eric Haban | | "Stay the Course" | "Press on Regardless" | | Wisconsin Bogleheads Chapter Coordinator
User avatar
haban01
 
Posts: 617
Joined: 1 Mar 2007
Location: Wisconsin

Postby SpringMan » Mon Mar 17, 2008 4:35 pm

Bear markets build character.
What doesn't kill you makes you stronger.
You can't buy back your youth when you are old.

Happy St. Patrick's day
Best Wishes, SpringMan
User avatar
SpringMan
 
Posts: 4147
Joined: 21 Mar 2007
Location: Michigan

Postby DRiP Guy » Mon Mar 17, 2008 4:43 pm

Proves the sagacity (or lack thereof) of Market Analysts:

As of March 13, the day before Bear revealed its stricken state, among 15 analysts surveyed by StarMine Corp, a unit of Reuters, five rated Bear "buy" or the equivalent, while 10 rated it "hold." None rated it "sell."
User avatar
DRiP Guy
 
Posts: 2234
Joined: 20 Feb 2007

Postby Random Musings » Mon Mar 17, 2008 5:03 pm

Bear markets can cleanse excess speculation.

Bear markets are great for young people in the accumulation phase.

Bear markets make one respect what risk is all about.

RM
User avatar
Random Musings
 
Posts: 4969
Joined: 22 Feb 2007
Location: Pennsylvania

Postby PatrickS » Mon Mar 17, 2008 5:06 pm

jh wrote:You won't need to pay any taxes on your gains because you won't have any. :lol:


I know this was a joke, but it has some actual validity. Case in point-

I can now sell shares of my (taxable account) small cap index and transfer to the tax-managed small cap index with less capital gains taxes to pay.
PatrickS
 
Posts: 51
Joined: 24 Feb 2007

Hmm...

Postby rpike » Mon Mar 17, 2008 5:15 pm

Now I can convert more shares of my Traditional IRA to Roth for the same amount of taxes.

Another Rick
User avatar
rpike
 
Posts: 386
Joined: 19 Mar 2007

Postby SpringMan » Mon Mar 17, 2008 5:16 pm

PatrickS wrote:
jh wrote:You won't need to pay any taxes on your gains because you won't have any. :lol:


I know this was a joke, but it has some actual validity. Case in point-

I can now sell shares of my (taxable account) small cap index and transfer to the tax-managed small cap index with less capital gains taxes to pay.

This is true regarding selling a fund at a loss but funds can and do distribute taxable capital gains and dividends even if they drop in value.

Best wishes,
Best Wishes, SpringMan
User avatar
SpringMan
 
Posts: 4147
Joined: 21 Mar 2007
Location: Michigan

Postby sschullo » Mon Mar 17, 2008 5:23 pm

Bear markets make immature investors (active, performance chasing, following and purchasing high priced newsletters and watching Jim Cramer and other Wall Street mucky mucks) into seasoned investors.

Bear markets make you feel the pain of your mistakes, make corrective actions and help you learn that you the only one responsible for your decisions. Pain that was a result of your mistakes, eventually turns into wisdom. It doesn't happen any other way. There are no shortcuts. You have to experience this through a bonified bear market.

In the short term, it is terrible, horrific experience, but if you keep at it by reading, talking to people and learning more, the terrible times turn into the greatest benefit of all---Wisdom and perhaps a little more money the next time around.
Steve
sschullo
 
Posts: 1486
Joined: 1 Apr 2007
Location: Rancho Mirage, CA

I smell a come back !

Postby Trev H » Mon Mar 17, 2008 5:43 pm

Small Value outperformed the Market 5 years in a row after the 73-74 Bear ended.

Small Value outperformed the Market 4 years in a row after the 2000-2002 Bear ended.

Maintaining my SV Tilt ;-)

Trev H
Trev H
 
Posts: 1742
Joined: 2 Mar 2007

Next

Return to Investing - Theory, News & General

Who is online

Users browsing this forum: anakinskywalker, bci101, bytendog, cathyr, diasurfer, emoore, grayfox, Johm221122, kenyan, midareff, N52570, Snapper, The Wizard and 64 guests