“Don’t gamble! Take all your savings and buy some good stock and hold it ‘till it goes up, then sell it. If it don’t go up, don’t buy it.”
— Will Rogers, American humorist and actor (1879 – 1935)
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| Adrian Mastracci, portfolio manager at KCM Wealth Management, says “Investors have enjoyed a grand bull market since October 2002." |
Vancouver, BC (October 15, 2007): It’s time to don the party hats and wish this long-running bull market a very happy 5th birthday! A very feisty bull indeed. One of a select few to make it past year 5.
Adrian Mastracci, portfolio manager with KCM Wealth Management in Vancouver, says, “Investors have enjoyed a grand bull market since October 2002. With very few hiccups along the way.”
October is also famous for birthdays of the bearish species. Let’s start with October 1929 that ushered in the Great Depression. How about October 1987 as the quickest on record – a decline in the Dow of nearly –23% in one day! Lastly, October 1997 when the Asian financial crisis began.
The question investors now ask is where do the markets go from here? Is there more life yet to unfold in the bull or is it ready for change? The Will Rogers wisdom comes to mind.
I’m revisiting some market history to better understand the present. First, I’ll ponder some bear market facts as they are seen to be portfolio spoilers. Then some tips for today’s bullish landscape.
1. Revisiting bears
I define a bear market as a decline of at least 15% in a widely followed stock index. Like the Dow Jones, S&P 500, NASDAQ or the TSX Composite. Recall the last 2 ¾ year long bear ended in October 2002 trimming about –35% off the Dow.
Over long periods, the markets spend roughly 2/3 of the time going up and 1/3 going down. However, most investors remember more bears than bulls.
By my count, investors have weathered 23 bear markets since the year 1900. The Dow Jones price declines ranged from about –89% in the1929-1932 period to –16% in 1998. Hence, we’ve had a bear market, on average, nearly every 5 years. Typically lasting from 3 months to 3 years.
Bear markets begin to take shape from the lofty heights of bulls. While bull markets rise to prominence from the scorched ashes of bears. Both are part of the investing experience. It’s doubtful that anyone can escape bear markets during the investing lifetime. I prefer learning to accept them.
2. Where to from here
In my September 2002 commentary, I wrote, “Nobody has the insight to pick market bottoms in advance, not even the professionals. However, investors with foresight to buy quality on weakness reap superior long run rewards.”
The reverse is true today. It’s even more difficult to pick market tops. Being a cautious investor is okay. Fixed income yields represent a base return for investors who fear the risk of a downturn.
Economic confidence is fragile. A US slowdown is in the making. It’s too early to gauge last quarter’s corporate earnings. The US dollar continues to weaken. The markets are priced for perfection. Oil is flirting above $86 per barrel. US housing is in a slump.
No one right answer fits all portfolios. No magic rules exist. So, tailor the personal experience of running with the bulls.
Here are some options:
- If the market risks still feel comfortable, stay within the chosen asset mix.
- If the suitable asset mix is not yet in place, have it designed.
- If the risks seem higher than the personal tolerance, reduce some exposure to equities.
- If capital preservation is uppermost, consider a bigger measure of fixed income.
- If cash is the primary asset now owned, invest it over time, say 1 to 2 years.
Expect some rough patches going forward. The difference between a slowdown and a recession is a thin line.
We’ve had a long, well-established bull market. One or two good data releases can propel it even higher. But no bull market can last forever. Someday it will get tired.
For now, a toast to the birthday bull on its 5th!
I welcome your questions, comments and opinions. |
