Sunday, September 27, 2015

Preparing for a Bear Market

I've been wresting with whether the stock market is more like 2008, which was the decline before the crash, or 2011, which was the decline before a big rebound.  

With the recent stock price action, the market is starting to feel a lot like agonizingly slow decline until a big fall.  Anecdotally, in 2008, I had decided to ride out the volatility, instead of selling out.   At this time, I have also decided to maintain our current investments, which may not be a good omen for me.

Also, several major companies, such as Hewlett Packard and Catepillar,  have resumed cutting jobs.  This doesn't bode will for their expectations for the economy.   I think there is now a risk of a U.S. recession, which virtually no economist is predicting.

However, the major negative is that stocks keep going down.  Many stocks are already down 20% or more.  Some previous high flyers, such as Ambarella and Alibaba, are now down over 50%.

So now, I'm going to assume a bear market is coming... at least a 20% decline of the S&P to 1705.

I will still try to make small purchases of select dividend stocks and a total market ETF as the market falls, but I will be patient.  At a 20-30% decline, I will try to be disciplined and move 10-20% of our cash back into equities.

Disclosure:  At the time of publication, we did not have any positions in Ambarella or Alibaba.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

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