Call It What You Will

In late 2018, I heard a well-respected stock market “guru” state that we were in a bear market.  He was interviewed again recently and now he’s saying that if we don’t break the lows from December, the bear market could be ending.  Really?  Just like that the “bear market” could be ending?

Let’s first define the generally accepted definition of a bear market.  A bear market is one that falls 20% from its recent high without taking time into consideration. 

A drop of 20% in just a few weeks and then a complete recovery within a few weeks is very different than a market that falls 20% and stays down for months and years.  In other words, bear markets don’t last 2 months.  But, does it matter? Yes, of course it matters.  What doesn’t matter is what we call it or name it.

For years, the market’s been labeled by many as either a bull market or a bear market.   These terms have been tossed around even more frequently since 2008.  Then, markets are also at times defined as in a “correction”.  At the end of the day, do these labels help investors actually make money or prevent losses?

Of course, the answer is no.  I’m not sure who originated labeling markets, but I bet it was somebody who’s goal was to get a reaction out of someone or a group of people.  The more people react to these names, the more volatility there is, and ultimately the more dislocations the various people can take advantage of appear. 

A correction has been labeled a market down over 10%.  A bear market is one where a market has fallen 20%.  Is there really a difference between a market that’s down 9.99% and 10.01%?  No, but the media calls one a correction and not the other.  How about 19.99% and 20.01%?  One’s a bear market and one’s not. 

It doesn’t stop with just labeling markets.  It’s spread to using adjectives to get you to do something, which can lead to action bias.  Sensationalizing the markets has been common practice since the 1990s.  They’ve turned it into a sporting event.  Even some financial shows on television now have words in them like “halftime”.  Another one we like is when there are “Markets in Crisis” specials on the tv whenever the stock market is down a bit.  Side note, there have been many times that these types of events have coincided with stock market bottoms, not tops.

Investors need to focus on having a portfolio that reflects their goals.  It sounds cliché, but it’s true.  A diversified portfolio that is customized for each individual is the key.  Honestly, does somebody with a 15, 20, or 30-year timeframe for investing care about “bull markets” or “bear markets”.  Well, they care because it’s crammed down their throats from the media.  The only thing they should care about is taking advantage of dips.  Those that bought in 2002 and 2009 have been handsomely rewarded.  More recently, the ones that bought in late December have been rewarded as well.  Call it what you want, but markets will always move.  They’ll go up, they’ll go down.  Those that stick around for the long term and make prudent decisions will ultimately be wealthier.  That’s a label we all want.

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