Bear Market Game Plan
In August 2008 I closed a business I was running with my brother. It was a sports memorabilia shop. I was essentially broke.
Two months later the stock market started crashing.
I sold all the inventory I had left on eBay, didn’t pay my rent (sorry landlord), cancelled my cell phone, ate $0.99 bags of chips for lunch and $1.50 frozen pizzas for dinner. I moved in with my brother and slept on a couch for 3 years.
I put all my money into the stock market.
8 years later in 2016 I sold every stock I owned and bought a house I still live in today.
The S&P 500 index fell into a bear market intraday on Thursday.
But don’t panic …
These are life changing moments.
We should see a nice bear market rally soon. A move on the S&P 500 back to the top of the channel would be roughly 10% higher.
My plan is to sell some stocks into the rally as it moves back up the channel. Not everything in my portfolio … but I’ll raise more cash.
If you watched my appearance on the Trader Merlin Show on Thursday, my thesis is we’re in for a valuation reset. Stocks, crypto, NFTs, baseball cards, used cars, Rolex watches, eventually your house has or will reset in value.
We saw this in 2000 with tech stocks. We saw it in 2008 with home values. Today everything is going to reset.
I’ll do a video on this topic on Sunday … but the last valuation resets left plenty of time to “buy the dip”.
From when the S&P 500 bottomed in July 2002 - you had about 1,827 days - or 5 years before markets got back to the highs it made before the dot com crash.
After the S&P 500 bottomed in March 2009 - you had about 1,462 days - or 4 years before markets go back to the highs.
No one is certain how much market will go down. But having been an investor through two of the largest valuation reset markets - ever - this feels the same.
Let’s assume I’m wrong.
Markets rally back to all time highs. Maybe even breakout above.
You think the FED would lower rates or restart QE?
If you answered yes, I love you, but super doubtful.
That means 4, 5, 6%++ yields. I’ll wipe my tears with cash I had on the sidelines with that.
In retirement or close? Saving for a house & don’t want to lose a bunch of money? Trading on margin?
I’d be de-risking. Stop loss 100% for sure underneath Thursdays intraday lows. If the S&P 500 technical pattern holds, we’ll rally 5-10% and come back down and make a new low. Sell the rallies.
Cash was trash for a decade. Higher rates that’s not the case. Cash is king.
Shopping List
I get asked at least 20 times per day what I’m buying - or will buy.
I actually think that’s really cool, to actually have earned the trust of many to be asked that.
What I want to buy will always be semi-conservative now. Not Warren Buffett conservative, but close. I’m not the broke 26 year old with nothing to lose like 2008. I have a family, people who rely on me now.
#1 Dividend Growth & buyback heavy stocks.
Apple, Microsoft, Nike, Visa
#2 Speculative Growth
Tesla, Nvidia
#3 Bread & Butter
Wal-Mart, Costco, Berkshire, Pepsi
#4 Amazon, Google, Bank of America
When the market stops making lower lows every month like clockwork - I’ll look at small caps and beaten down names. An ETF is good enough if you don’t want to research.
If you’re 60+ I’d look closely at bonds later in the rate hike cycle. With rates rising it’s going to knock the price down. I fully expect the FED to flip to easy money again, that’s your upside (since bond prices rise when yields fall). You’re protected with higher yield if rates stay high.
If you’re 20-40 years old be grateful this moment came & hope the downtrend lasts. You can easily go from sleeping on a couch to owning a home in less than 10 years. It will take discipline, patience and hard work. Freedom will be the reward, money the consequence.
Do not panic. Everyone’s long portfolio is getting smoked. Formulate a game plan. Determine your long term goals. Set a target. Don’t lower it. In 2008 mine was $100,000 by the time I was 40. When you’re eating bags of chips for lunch, that seemed impossible. I still eat bags of chips, but now the target is $10,000,000 when I hit 50. I’m not exactly sure how I will reach that goal, but panicking won’t help.
Good luck with your investments.
Colin Tedards
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Thank you! It was really helpful!
Hey Colin, thanks for your good works, your voice is something I appreciate in this noisy web era.