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By Adrian Mastracci
North Shore News
Business Section, “Loose Change”
Sunday, September 9, 2001
What strategy should a prudent investor consider during our seemingly
never-ending bear market?
This dilemma touches investors and professional money managers
alike. The count indicates that this is bear market number ten since
World War II. However, today’s bear can’t seem to turn
off the tap of economic malaise.
When you’re in the midst of a bear market, don’t fold
your tent. Rather, stand up to the bear as high as you can. You
may still experience some mauling, but at least the severity of
the damage will be contained.
A review of previous bear markets, that now seem a distant memory,
produces five venerable bear market wisdoms. They will help keep
your investment cool while you’re up close and personal in
the face of the bear.”
Here are the five market wisdoms for taming the bear:
- Don't panic. Bear markets are a natural part of your investment
experience. Factor in the effects of a prolonged bear market into
your investment expectations and you will improve the probability
of achieving your unique goals. Of course, stock up on plenty
of patience to weather the storms.
- Consider your time horizon, appetite for risk, investment personality
and minimum investment return to achieve your chosen destination
before making your asset allocation decisions. Find a trusted
investment professional and draft your asset allocation plan.
Building a home and investment portfolio have one common element
– the results are better if you start with a blueprint for
each.
- Forget market timing. It doesn’t work often enough. The
1990 Nobel Prize winning studies demonstrated that market timing
explains, on average, 2% of the contribution to total return.
That’s a low percentage strategy.
- Limit your exposure on single stock investments to levels prudent
for you, more so if the company also employs you. In baseball,
it’s preferable to get on base frequently, rather than always
aiming for the home run. The same applies to your investment portfolio.
The occasional investment home run is exciting, but it’s
the strikeouts that inflict serious portfolio damage, especially
during bear markets.
- Always remember your long-term goals when investing, especially
financial independence and retirement. Become familiar with the
capital value required to look after your long-term needs. Your
investment professional should help to focus and maintain perspective.
Adopting these five venerable wisdoms will not only help you through
the painful bear market experiences. They also set the stage for
the day when the sun will rise and shine again.
The successful bear market strategy is to face the bear on your
terms while keeping your investment cool. This will navigate you
through the often stormy waters towards your destination.
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