It’s OK To Be Bearish

Hi all,

Hope everyone had a Happy Thanksgiving,

I was talking to fellow trader the other day and I was lamenting the struggles over the last few months with the active trading strategy we employ for a few clients.  Knowing my background (having worked closely with someone negative on the stock market for many years), he understood why I was dismissive of him being bearish on current market conditions (hasn’t panned out too well over the past nine years).  I found myself realizing that he was correct.  I lump those people who let current events dictate their mindset, rather than a long or short bias, in with every Chicken Little that pops up from time to time. I do have a positive tilt toward the overall stock market, and I always will.  It’s not seductive, or special, in any way. I just feel that over the long-term, technology will continue increase productivity (keeping inflation low), the population will continue to grow throughout the world, and GDP will continue to trend upward.  Being a long-term bull and a short-term bear is incredibly difficult for me to reconcile.

But…

That doesn’t mean valuations haven’t become extended, growth expectations haven’t become unrealistic, and caution should be thrown to the wind.  We currently have the first real signs of fundamental economic weakness since 2016, specifically for interest rate sensitive sectors like housing and automotive sales.

We have no idea whether this blip on the long-term radar will end today and travel back to new heights, or continue lower and extend losses which have been quick and furious.  Even if we do zoom right back up to all-time highs, a downturn of some type will always be around the proverbial corner. If you’re young and are adding capital to your portfolios, you WANT prices to go lower (gasp!).  If you’re nearing retirement, trying to make up for those two stock market crashes over the last 18 years, but feel as though you can’t afford to see your nest egg go down another 20%, it means you’re stretching. If you’re in retirement and are living off of dividends and interest, the strongest dividend payers in the world are taking their turn laughing at the growth guys.  Pepsi, Coke, Pfizer, Merck, Johnson & Johnson…all at decade highs or more.

There will be recessions along the way, there will be corrections, bear markets, and even crashes, but I just can’t bring myself to view any of these downturns as anything more than a great buying opportunity, which, in retrospect, is exactly what they are.  We need to try and stop calling for a bottom because it makes the journey easier.  It’s never been easy and won’t be in the future, but the good news is that we know what happens after Winter ends.  Spring…

– Adam

Hitting the Links

Built to Break – “Knowing that markets break sometimes doesn’t make dealing with broken markets any easier. But if we know that broken markets are eventually repaired, then it would behoove us to build a portfolio that breaks in a non-catastrophic way, giving us the ability to hang around until the time that they are fixed.”

Exception to the Rule – “Most swans are white”

A Picture is Worth…

Potent Quotables

“People tend to believe that recent trends will continue, whatever they may be, and then, when things shift, they change their expectations again.” – Robert Schiller