When will the bear market end? That is the question to which everyone wants an answer. While there is no specific answer to that question, there are indicators and technical measures that provide some guidance. From the portfolio management perspective, those are the parameters we must operate from to minimize capital destruction and limit emotionally driven mistakes.
2022 has been a year unlike many investors have seen in their investing lifetimes. While there are some that went through the 2008 bear market, there are fewer still who lived through the “Dot.com” crash. Such is the nature of “real” bear markets that tend to destroy investors and drive them from investing in the financial markets permanently.
While there are many “buy and hold” practitioners suggesting investors just dollar-cost-average their way through a downturn, reality tends to be far different. When markets decline enough, there is a point where every investor changes from “Buy The F***ing Dip” to “Get Me F***ing Out.”
When it comes to investing, most armchair portfolio management systems work great as long as markets rise. However, when the eventual correction comes, the psychology of “loss aversion” disrupts the best-laid plans.
It is also important to understand that “bear markets” are just the natural completion of a “full market cycle.” During bull markets, excesses are built which are reflected in valuations as investors overpay for assets on expectations for infinite growth. Obviously, since the business cycle is not infinite, the ensuing bear market is the reversal of those excesses. While “bear markets” often surprise investors, they are the logical conclusion of the preceding advance.
So, with a potential bear market at hand as the Fed hikes rates, inflation remains high, and the economy continues to slow, let’s get to the question at hand:
“When will this bear market end?”