Thursday, January 17, 2008

Bear Market - Stage One

"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." Peter Lynch

Experience is one of the benefits of being older:-) It has been eight years since the start of the last market downturn and some investors haven't experienced the pain of a bear market. Here's the stages I've seen the several bear markets I've experienced:

  1. "Things are going to get a lot worse, before they get worse." ~ Lily Tomlin. When one thinks it can't get any uglier, it does. One only has to look at the current housing situation and the credit market crunch. Each day seems to bring more bad news that's even worse than before. Eventually, investors and speculators start leaving the market, driving prices down even further.

  2. "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. ~ Warren Buffett. At some point, almost no one wants to buy stocks and prices are down significantly. In hindsight, this is often the turning point of the bear market. However, it is difficult to predict when the turning point will happen or know that it is happening.

  3. "It's deja vu all over again."~ Yogi Berra. As with the 23 bear markets in the past 100 years, the stock market rebounds and achieves new highs, rewarding people who stayed invested.
At this time, I think we are still in stage one. Until early January, 2008, I believed the current bull market would last until the summer of 2008. However, the market is looking weak enough that I don't think it will rebound this time. My investment accounts have retraced almost all the gains from 2007. Unfortunately, it looks like the news is going to get worst.

For now, I will continue to stay invested, and not increase the equity percentages. Fortuitously, we have set aside our next three years of retirement living expense in fixed income investments (e.g. CDs, municipal bonds and money markets.) As 2008 proceeds, I will look for buying opportunities for the selections from the Modified Unemotional Investor stock picking system.

For more on Crossing Generations , check back every Thursday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.
Copyright © 2008 Achievement Catalyst, LLC

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