Road Construction Next 50 Miles

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

Is there a less welcome sign when you are on a car trip? Especially when you have just passed through 50 miles of road construction!?! I can think of a couple, such as Road Closed and Bridge Out Turn Back. These last two are generally not seen on major thoroughfares, for good reasons. Heavily traveled roads usually have greater requirements for ensuring the safety and comfort of travelers. In like fashion, mutual funds have advantages over individual stocks for ensuring the safety and peace of mind for long-term investors. Did you like that segue? There are a dozen reasons why it is an accepted fact and why we strongly prefer using mutual funds over individual securities.

Just in case you haven’t been paying attention, U.S. and world stock markets are in a Bear Market. Bear Markets are generally defined as a time when securities decline significantly for a meaningful period of time. A specific definition might be ‘a Bear Market occurs when securities or securities markets decline by more than 20% over a period of six months or greater.’ The amount of decline and the amount of time may vary according to the declarer’s parameters and the type of securities. Very volatile securities could require larger declines over shorter times, while low volatility securities, such as bonds, might only experience smaller declines, but over longer periods of time.  

Bear Markets are not terminal events. In fact, they may be considered as bridges that connect Bull Markets. The reality is that for financial markets Bull Markets and Bear Markets are indeed are series of expanding and contracting events that are absolutely connected. One starts where the other ends. And fortunately for investors in equities, historically Bull Markets have consistently been more productive and have lasted far longer than the shorter connecting Bear Markets. Which means that it’s worth the wait for Bear Markets to end. Which in turn begs the question, “Are we there yet?”

The favorite answer of parents, and the least favorite of children is, “You’ll know when we get there.” Which is actually how the beginnings and ends of Bull and Bear Markets are defined, in hindsight. When we are done traveling, we have arrived. When financial markets have stopped going down, as in a Bear Market, and have started going up, it could be a new Bull Market and vice versa. Yes, it really is that subjective and that obscure! With all of our technical science and analysis, Bull and Bear Markets are still defined in hindsight.

Of course, there are sensible indicators that assist the observant in evaluating these events. One of the most obvious is, the higher you have climbed, the farther you have to fall. The best example that I can think of would be the Bull Market of the late 1990’s, which lasted longer and soared higher than had been seen in decades. The ensuing Bear Market was particularly long and deep. Yet it, too, was followed by another Bull Market, and so on. Markets are cyclical, along with business cycles and political cycles and seasonal cycles. It is the way of the world.

The U.S. and world economies had been enjoying a long, lazy Bull Market after the Financial Crisis of ‘07-’08. Then they were abruptly detoured onto a rough, poorly planned detour now known as the COVID Correction. After a lurching stop and restart, then the emergence of a long-dormant Russian bear, they were more than vulnerable to tidal political and inflationary waves. While that Bull Market had been long and lazy, it was never loud and rowdy. It may just be that this Bear Market will be equally mindful of its manners. After all, it has already been eleven months in the making, and fulfilled all the basic requirements. Are we there yet? No! Now get back to your comic books before you really have something to whine about.       

Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.

© 2022 Edward D. Foy.   [email protected], .

Sources: StockCharts, Morningstar, Stock Trader’s Almanac 2022.