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Weekend reading: Remembering bear markets

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What caught my eye this week.

Every year the global bull market in equities and bonds continues, it gets harder to convince people that investing isn’t always so breezy.

Sure we had that setback towards the end of 2018. If you squint a bit, it could even be described as a crash. But the whole thing was over in a couple of months!

I read comments in the aftermath of that wobble from younger investors who were pleased they hadn’t sold out in a panic.

Good for them, genuinely.

But as trials go, the 2018 correction was a sprint, not a marathon.

Crash course

A proper prolonged crash will come again. That isn’t a reason not to invest – bear markets are part and parcel of enjoying the gains from shares – but it is a reason to make sure your portfolio is robust to all reasonable scenarios.

This new video created by Robin Powell for financial planner RockWealth provides a good primer for those who don’t know – or have forgotten – what a bear market looks like:

(If you’re reading on email and can’t see the video, please visit the post on Monevator.)

Even I have to remind myself that in the years immediately after I began this website – in the depths of the 2007 to 2009 slump – I was accused of recklessness for suggesting readers continue to put money into shares.

If that’s hard to believe now, think of all those who say today they would never own bonds or REITs or gold – preferring to go all-in on equities.

Sure the expected return from bonds looks lousy (as it has for the past few years).

But if shares lose 30% in a year then you’ll soon hear from others who were delighted they had some money in other assets.

As John Lim – reflecting on the 30-year bear market in Japan – wrote for Humble Dollar this week:

If the Japanese experience teaches us anything, it’s that stocks can be incredibly risky.

A Japanese investor who had some portion of his or her holdings in bonds fared far better than one fully invested in stocks.

If nothing else, it would have allowed him or her to sleep better at night.

Here’s a few more miserable reminders to vaccinate yourself against hubris:

Don’t be too frightened to invest!

But don’t be too invested to avoid getting frightened…

Have a great weekend.

From Monevator

Note: In light of useful reader feedback, The Accumulator has updated and republished Part 3 of his series on optimal use of your tax shelters. If you’re following closely you may want to re-read it.

How to choose an SWR for your ISA and your pension to hit Financial Independence fast – Monevator

From the archive-ator: The Monevator millionaire calculator – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

Energy bills to fall for about 15m households as price cap lowered – Guardian

Brits were ‘significantly’ less satisfied with life last year, ONS reveals – ThisIsMoney

House prices rising at fastest rate in two years, says Halifax – Independent

Spouses to receive an extra £20,000 if partners die without a will [Search result]FT

John Lewis and Waitrose may be forced to ‘close stores and cut jobs’ – ThisIsMoney

[Click to enlarge the sell-off!]

Why coffee is caught up in the coronavirus sell-off [Useful video at bottom too; search result]FT

Products and services

Are you ready to buy and own an electric car? [Podcast]ThisIsMoney

Amazon Choice label is being ‘gamed to promote poor products’ – Guardian

Where first-time buyers hunt for homes: London, Luton, Reading, and Wolverhampton – ThisIsMoney

RateSetter will pay you £20 [and me a cash bonus] within 30 days of your first £10 deposit – RateSetter

Equity release: What are the options for older people? – Guardian

You can now part-own a Ferrari via a tokenised blockchain – Bloomberg via MSN

Direct indexing to kill ETFs? Not so fast – ETF.com

Comment and opinion

The case for FIRR: Financial Independence, Redistribute Retirement – Humble Dollar

Why Mr Motivator gave up on pensions and lives like there’s no tomorrow – ThisIsMoney

Where are we in the property cycle? [Search result]FT

Movie déjà vu: Coronavirus – Investing Caffeine

‘The biggest lie in personal finance’ [On FIRE…lights fuse, stands back]Of Dollars and Data

“For God’s sake, you’re scaring people to death”A Teachable Moment

Now never feels like the right time to invest – The Retirement Field Guide

Trojan horse – Indeedably

Meet America’s ‘Elite With No Savings’ – Summation [hat tip Abnormal Returns]

Graphic of the week: Extra!

[Click to enlarge]

800 years of falling interest rates [PDF]Bank of England

Naughty corner: Active antics

The man who made a killing on the 1929 crash – Novel Investor

Personal Assets Trust: Bear turned up to 11 – IT Investor

Charles D.Ellis: The (easily misunderstood) Yale Model – Institutional Investor

Can Orsted by the first green energy supermajor? [Search result]FT

Why John Kingham sold Aggreko in January – UK Value Investor

Low volatility combined with momentum factor portfolios [Geeky]Alpha Architect

Tesla mini special

Is Tesla’s surge the greatest short squeeze of all-time? – The Reformed Broker

Tesla is a stock-picking nightmare – or is it a dream? – Bloomberg via Yahoo Finance

More: Why is shorting stocks so difficult? – Pragmatic Capitalism

Tesla is nuts. When’s the crash? [Search result]FT

Politics

Mike Pence hints UK’s Huawei decision could jeopardise trade talks – Guardian

Kindle book bargains

Bitcoin Billionaires: A True Story of Genius, Betrayal, and Redemption by Ben Mezrich – £0.99 on Kindle

Zero to One: Notes on Start Ups, or How to Build the Future by Peter Thiel & Blake Masters – £1.99 on Kindle

Walden on Wheels: On the Open Road from Debt to Freedom by Ken Ilgiunsd – £0.99 on Kindle

Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker – £0.99 on Kindle

Off our beat

How Google got its employees to eat their vegetables – One Zero / Medium

Antarctica registers hottest temperature ever – CNBC

Lex in depth: the $900bn cost of ‘stranded energy assets’ [Search result]FT

Again and again and again – Seth Godin

Modern Arks: Designs for the new climate reality [Gallery]Guardian

And finally…

“The fight is won or lost,’ says Muhammad Ali, ‘far away from witnesses – behind the lines, in the gym, and out there on the road, well before I dance under the lights.”
– James Kerr, Legacy

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{ 63 comments… add one }
  • 51 weenie February 11, 2020, 2:43 pm

    I only started investing around 2011 (though buying funds marketed by HL probably doesn’t really qualify as real investing…) so I’ve yet to experience any sort of real market correction or downturn.

    Easy for me to say that when it happens, I’ll probably ‘keep calm and carry on investing’ but I’m more or less halfway to FI(RE) now so like @Edward (comment 47) a big pull-back could ruin it all (or just means that I work longer than planned).

    I like the idea of having cash on hand to be ‘greedy when others are fearful’ but will likely just continue on a monthly basis.

  • 52 Edward February 11, 2020, 4:04 pm

    Thanks Al Cam – Kind of wish I hadn’t read Ern’s blog now!!

  • 53 tom_grlla February 11, 2020, 4:40 pm

    More thanks to all – very interesting debate.

    Good points about how swift (while brutal) 08/09 was.

    And buying on the way down – this is an argument I suppose for ALWAYS having a bit of a cash buffer, as things can ALWAYS get cheaper. I will have to re-read the TI archives, as it sounds like a masterclass in overcoming fear and buying at the right, if not perfect, time.

    2000-03, being longer, must have been psychologically tougher, and as zxspectrum says – for many investors in the late 90s, it wasn’t unrealistic to not break even until about 2010 – unimaginable now!

    With apologies for going active, but I do know that in 1999 there were ‘options’ e.g. defensive stocks were relatively cheap, which is not really the case now (er… except maybe Russia, Energy, Japan Net-Nets?).

    But it does feel that if you stick to companies with conservative leadership (e.g. with super-strong balance sheets) and decent management shareholdings, then you’ll own things where even if the share price plummets with everything else (correlation seems to be stronger on the way down), they will be in a better position to take advantage (e.g. buying up competitors etc.) and bounce back faster.

    And I still favour Capital Gearing as a protective option, as a partial ‘diversification’ from bonds with low interest rates. However hard I try, I struggle to truly believe in the other ‘all-weather’ people like PNL and RICA.

  • 54 Sparschwein February 11, 2020, 8:57 pm

    Has anyone looked into whether these government plans of slashing pension tax relief could hit in the *current* fiscal year? Is it certainly beyond them to change the rules retroactively?

  • 55 Matthew February 11, 2020, 10:06 pm

    @brod – you have skin in the game when you are short 1 house and prices rise faster than you can save – a bull market can be distressing in that way -losing money to the inflated price youll have to pay, which is why I started investing, because I needed to keep up with/outpace house prices

  • 56 Naeclue February 12, 2020, 12:25 am

    @tom_grlla, when you are accumulating, bear markets are a very good thing. Why would you want to pay a high price for shares? High prices are only a good thing when you are decumulating.

  • 57 Edward February 12, 2020, 9:35 am

    @Naeclue
    Surely it’s all about timing. A bear market now could ruin my plans because my DC fund wouldn’t hit the number I need by 55. Granted all my contributions would buy more shares in the next six years, so swings and roundabouts…

  • 58 Kerry February 12, 2020, 9:57 am

    @Marked #23

    There are definitely regional factors which influence house prices. I first got interested in house price cycles as a youngster during the 80s after reading about 7 year cycles. I believe that these broad cycles hold true, but where we are in our own life cycle relatively to these cycles is the thing we have no control over (i.e. when we are born). Awareness is the key imho.

    Regards,

    Kerry

  • 59 Brod February 12, 2020, 3:00 pm

    @Matthew – I think you’re conflating to different issues here – stock market crash and high house possibly getting away from you.

    I would query, though, if the stock market is the right savings vehicle to use for money needed in under 10 years. If we’d have not had a V-shaped crash, primarily helped by the world’s central banks throwing free money around, but a more typical crash (the 2000 crash took about 3 times as long to get back to it’s real, inflation-adjusted peak as opposed to 2008) your might only just be evens now.

  • 60 Matthew February 12, 2020, 5:24 pm

    @brod – luckily i have the house now but regarding usibg equities to save for a house, the best mitigation there is to be flexible about when, which I had to be, and although that method involves risk, there sure is risk (odds on) saving in cash chasing something that historically rose 5% a year

    I felt like what I needed was to be buying more bricks!
    The whole experience was an education that I carry forward to sipp investing now

  • 61 Edward February 20, 2020, 10:19 am

    Although most fund managers are predicting a flat-low growth year, this article is really worrying me about the bear market that will surely come sooner rather than later.

    Who here would forego the predicted 5-10% increase over the next year or two for the security of (inflation-eroded) cash and sleep more soundly, and who is flying blindly into the storm?

  • 62 ZXSpectrum48k March 9, 2020, 1:38 pm

    This is making Lehman look mild! Oil futures were down 30% at one point today. HY credit is getting destroyed given the impact that will have on shale producers. You can sell by appointment only. Yes, COVID-19 is the underlying driver, but no one saw the Saudis and Russians not being able to come to some agreement on oil production. The 2016 OPEC+ agreement is in tatters.

    S&P future is limit down. So we wait for the US cash open. It’s bonds though that consistently amaze me. The 30-year USTs is down 38bp on the day at the moment… that’s an 8% positive return in just one day. I sold VGLT (UST long-duration bond tracker) and IUSA (S&P 500 tracker) on Friday to reduce my portoflio VAR. Yet, today the gain on VGLT is again greater than the loss on IUSA. Long-duration govt bonds have been the saviour here for any passive portfolio.

  • 63 Hare April 15, 2020, 2:40 pm

    I’ve been catching up, and reading this on 15th April has given a rather interesting new outlook on the post and comments.

    I quote:
    ‘But if shares lose 30% in a year’

    It was 6 weeks until the fastest bull market in history.

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