It looks likely this will be our first bear market since 2009. Bear market just means a prolonged market drop of 20% or more over a sustained period (2 months or more). Bear markets happen quite often.

A brief history into bear markets. Since 1929, there has been 25 bear markets. On average, that’s one in every 3.6 years.

What is not normal is the longest bull market in history which began in 2009 ending in February of 2020. A 11 year run and a new record for the longest bull market ever in history.

The average price decline during a bear market since 1929 to the last one in 2009 is -35.6%.

The average length comes to 299 days (About 10 months).

The trend over this period of time shows the average duration of a bear market has been getting longer on average. Don’t make too much of the trend line but it’s probably wise not to rule out the potential of longer duration going forward.

Bear markets can seem long when living through them. It will seem hard to see the light at the end of the tunnel. If your fairly new to investing, it’s scary but keep in mind, navigating through such markets will always be part of investing. So, expect them and learning to anticipate them is important.

The first bear market I ever experienced was in the early 2000’s. I had just begun investing so I had no idea what I was doing to be quite honest. The only bear I knew were the fluffy ones.

The only bear market I can truly remember was the 2008 financial crisis. That period lasted 16 months but it felt like forever to me.

The longer the bear market drags on, the more the weaker hand investors generally begin to drop out and throw in the towel. Just a personal observation I have made and noticed. My friends also threw in the towel and missed out on the best opportunity of a lifetime. Many later to regret.

The S&P has corrected about -26% of its highs and I am seeing it all over again. Many are throwing in the towel. Some to try timing the bottom. Some simply discouraged and stepping out of the markets temporarily. People are selling once again.

My views on bear markets have somewhat changed. I’ve come to realize a bear market is actually a necessary thing for the market. It’s a great moment to wash out speculation in the market and bring down valuations back down to earth. It brings back expectations down to more realistic terms and removes the excessive exuberance in markets.

Buying stocks overpriced is value destructive. It becomes more tilted to speculation and gambling than investing.

The best deals are often found during bear markets. We as investors should view them as our Black Friday type of event rather than a time to fear.

It’s times like this you pull out that stock wishlist you have been watching for years and start shopping.

This is the window of opportunity you have been waiting for when it comes to investing in stocks.

 

Stocks Bottom Before the Real Economy

History shows stocks tend to bottom before we have better understanding of where future earnings are headed. Very few will time the bottom.

We will need to digest at least 2 quarters of earnings to have any level of understanding of where earnings are headed. Bottom in stock price is one thing but stabilization will come when we have a better picture of what’s happening to company earnings. Till then, we can all expect elevated volatility in the markets.

The more fear and capitulation the more likely we will know when we are near the bottom.

When safety haven stocks, pristine balance sheets, all commodities, and even gold begin to sell off is when you know there is real fear in the markets.

Investors are flocking towards treasuries driving down yields to record lows.

Federal reserve is expected to lower interest rates another 50 basis points. We may be headed back to near 0% interest.

We haven’t seen the defaults racking up in the corporate bond markets yet. I feel we need to digest some bankruptcy news before we get closer to the bottom.

We are still in the ‘sell first ask later mode’ right now.

If I had to guess where we are in terms of bottoming, I feel like we are about 50-70% near the bottom.

Remember, It could be too late for the best deals when the good news start to roll in.

 

Windows of Opportunity

Reasons to sell? Or windows of opportunity? The financial crisis that began in 2008 resulted to a 51% correction. A chance like that in our lifetime doesn’t come often.

That single crisis alone changed my life. Without that window of opportunity, I highly doubt I would have achieved F.I.R.E by age 35.

No one knows if this current market will result to such correction but one thing is for sure.

The decisions you make during times like this can change your life outcome in the future.

Because of such black swan events in life, I am again reminded to never be caught without cash. EVER.

 

How I Plan to Navigate this Bear Market

I will stick to my game plan as always. I will be a net buyer of this correction. I have determined from my own personal research this could potentially be a prolonged bear market over 6 months. I am expecting a 6-month window to purchase stocks at great discounts.

The economic impact in my humble opinion will not be as bad as the 2008 financial crisis. Earnings will most definitely get hit. Dividend cuts? yes. Bankruptcies? yes. A 30%-35% correction in the S&P index doesn’t look impossible at this moment.

So, I made the adjustments to how I will deploy my opportunity fund based on my personal projections of the current situation.

All amounts shown on the table above are just an example and not reflecting my actual amounts.

I use the S&P 500 index as a barometer to help me navigate the turbulence in the markets.

I determined anniversary dates to deploy my opportunity fund (OF) based on specific percentage drops on the S&P off the highs. When the price corrects down to the following: -6%, -12%, -16%, -21%, -30%, and -40%, I deploy the specified amount for that correction shown under “$Deploy”.

Percentage deployed at each correction anniversary is pre-determined based on my personal research which may be adjusted.

When the S&P 500 corrects 6%, I deploy 6% of my OF. Correction hits 12%? I deploy 12%. Correction hits 21%? I deploy 18%. And so on.

This allows me to remain disciplined and keeps me from spending all my cash at once.

As the market corrects deeper, and hits the correction % figures, I transfer the cash into my brokerage and go shopping. Do I spend everything? Sometimes, it depends on how early I feel we are in the correction stage. However, by the end of each month I do put most of the money to work as planned.

I will also continue to reinvest my dividends and invest more of my savings from my free cash flow into stocks as we move through this turbulent market.

I know it feels like throwing money into the fire but when the dust settles, the goal is not to have any regrets not buying during such opportunity.

 

Buying Quality and Growth

This is the time to buy the top names you always been wanting to buy but didn’t because they were too expensive.

The best of breeds and your favorite long-term stories should be your primary focus. The companies you would truly feel proud of owning for the long term. Companies with strong balance sheets, strong economic moat, strong margins, low div payout ratios, strong rev growth, etc.

I will also be buying more companies who have committed to aggressive stock buybacks who are in good position to take advantage of these depressed prices to retire stocks. Companies with lots of cash in hand are enticing as well.

 

Long Term View in Mind

I invest so I can live a better life in the future not today. Investing is a long-term game. I have my sights out for years and decades.

Companies like Boeing have been getting hammered. I will continue to accumulate shares of Boeing. I see this as a golden opportunity. They may have to cut dividends or halt temporarily. They may have to get another crutch loan. However, I strongly believe the demands for planes will remain strong over the long term. Yes, I’m sure some orders will fall off. Yes, they may have to borrow more money down the line. But my long term thesis and vision for the industry are too enticing for me.

My investment time frame is another 25 years. Till then my plans are to continue being weighted more towards growth. As I get older, I will slowly shift towards more value and dividend stocks.

 

Cash Reserve Limits

Warren Buffett held a record amount of cash prior to this correction. Roughly about 20%. That is insane… More and more investors began to criticize him for his massive cash reserves that was sitting on the sidelines as the markets rallied to all-time highs. Boy, do they look stupid today as markets are tanking.

One of the biggest lessons in my short investing experience was that holding too much cash can really set you back.

The game is to find and have most of your money kept productive in this world.

We should not forget that  there are far more bull runs than bear.

I enjoy plotting my steps for the future to help guide me towards my goals. My cash reserves for OF is pre-determined based on how I envision my life going forward.

I do tweak this as I continue to mature as an investor. The more I learn, the more I hone and adjust these figures overtime.

I went into this correction with about 11% in cash or cash equivalent holdings which I’m quite happy about as I anticipated and prepared for a correction.

My plans are to remain weighted in growth at 80% and 20% Value. I will eventually begin to harvest growth into more value and dividend paying stocks as I age.

In fact, I already began learning about dividend growth investing and began building out my portfolio. If you haven’t checked out my portfolio, updates can be found here.

 

The Best Time to Level Up as An Investor

Having a game plan helps you stay disciplined and focused. I don’t allow my emotions to make my investment decisions.

It took a while to get to this point where I can sleep good at night even while the value of my portfolio drops like the way it has the past few weeks.

Understanding what you are investing in really helps calm your nerves. The more you understand your investments the less you will struggle with fear during times like this. Invest only in things you understand.

If you just began investing, you may be nervous and scared right now. However, I would advise not to stick your head into the ground like an ostrich in such historic moments in time.

In fact, this is a golden moment and by far the best time to learn, mature and grow as an investor. The greatest minds come out to contribute their wisdom, mistakes and lessons. Personally, I learn most during times like this.

Investing to me is about learning how the world works. It’s that simple. It’s trying to understand how things work.

Why a chain of events leads to other chain of events. How things are correlated in the economy and around the world. The more you understand, the less you become frightened when volatility strikes the markets.

 

Conclusion

I am quite optimistic about our ability to overcome the pandemic. The economic ramifications due to the virus will sting but this is nothing near in comparison to the financial crisis in my opinion. At least not yet.

I am not an epidemiologist but based on what I am learning, I remain optimistic that we will get through this and come out stronger on the other side.

I believe this event has brought to light some very interesting risks that will definitely need to be addressed in the future.

With the world more globalized than ever before, the risks of having your supply chain for medical supplies mostly overseas pose potential risks. The need for better and faster screening. Proper set of protocols for pandemics. Global protocols and cooperation. Stockpiling of proper masks to distribute to medical professionals to prevent shortages etc.

So much more new and interesting investment ideas have been raised in my mind. The lessons never stop.

Humanity will come out of this stronger and more prepared than ever for the next pandemic.

I am feeling quite optimistic about the future in the long term in light of what’s happening around the world today.

I will be a net buyer of stocks! Do you guys have a game plan? I would love to hear! Happy investing!