Financial Advice, Planning and Guidance.

The best time to plant an oak tree was thirty years ago.
The second best time is today.

Reaching Your Financial Goals

Our Consultative Approach is a time-proven method that focuses on your needs, your goals and your priorities. Isn’t that a better idea?
Learn More

Financial Advice and Strategies

Active money management is more than just a good idea: it is a responsibility. Are we the right partner for your retirement goals?Learn More

Planning. It's Really Not So Complicated

When you finally do figure out what to do with the rest of your life…you’ll probably want the rest of your life to start immediately. How about today?Learn More

Guidance: In Every Client Relationship.

At Denk Strategic Wealth Partners, our insight offers the ‘How’ and the ‘Where’…but only after your vision tells us the ‘Why’.Learn More

Weekly eLetter 6/24/2022 — Perspective: How Long Do Bears Last?

It appears that people have stopped asking whether this WILL be a bear market.  That
question has been replaced with ‘How long will this bear market last?’

Investors generally seem perplexed to find themselves in another bear market only 17 months past
the recovery from the prior one.  The prior one officially began in February of 2020 and
ended in August of 2020.  Although it was the 6th worst bear since 1927 (of the S&P and
predecessor indices) with over a 33% drop at the low point, it was unusually the shortest
bear by far, with less than six months from the start of the selling until the Index reached
a new all-time high.

For comparison, we’ve dropped about 23% so far over the past five and a half months
from the January 3rd peak.  Most people pay a lot of attention to the magnitude of the
drop, but the magnitude isn’t the only factor that destroys wealth- it is also the duration-
the length of time it takes to recover from the bear market drop.  A ‘mild’ bear that lasts a
few years can do more to destroy wealth than a much higher magnitude drop that is as
short as the 2020 bear, and the amount of withdrawals made during the bear greatly
exacerbates the impact on your portfolio.

So, excluding the crash of 1929 as being a very extreme outlier, the average bear drops
35.6% and lasts 39.4 months- or more than 3 years and 3 months!  (Stats courtesy Greg
Morris) The recent bear of 2020 came close to the average drop, but its length was so
short that you could have blinked and missed it.  For the few of you who only look at
quarterly statements and ignore the media (you would be the smarter group who ignore
the media) you would have seen one quarter (Q1 of 2020) when things looked ugly, but
by the next quarter you were down less than 10%, and then in the third quarter you were
back at all-time highs. THAT is NOT a normal bear in any way, shape, or form and does
NOT give a normal example of what we’re apparently going through today and should
not shape an investor’s expectations of how this bear will play out.

The current bear has already reached about the length of the 2020 one and it appears that
the general trends are still down. Anyone who ‘knows’ where the bottom will be and how
long it will take to get there, and also knows how long it will take to recover from the low
point, probably has some ocean-front property for sale in Arizona. You might want to ask

for their verified track record on other market guesses. They likely have made hundreds of guesses and perhaps been correct on a few.  We would not make a bet with either your investment capital or ours on whether the Fed can successfully orchestrate a soft landing (bringing inflation back to a normal range without stifling the economy). Their track record on this is abysmal. And, since we feel strongly that nobody can reliably predict when bear markets will occur, how far down they’ll go, how long they’ll last, or what will cause the next one (or much of anything else regarding financial markets), we use rules-based trend following to avoid the constant need to make guesses about the future.
We don’t have to guess and hope to be correct about the market, economy, Fed policy,
inflation, corporate earnings, government policy, or anything else. We agree that these
things likely matter to stock market performance, but not that you can “solve” the riddle
of the markets based on these forecasts to make sound investment decisions.

Additionally, the behavioral aspects of investing and that humans are notoriously poor
decision makers when faced with uncertainty also supports the folly of trying to invest
based on forecasts, predictions, or guesses about the future. Instead, we follow rules that react to what the market is actually doing – that’s it. If the market is moving up, we try to participate, but when we detect breaks in the uptrend and the market moves through our stop level, we sell out of most equity positions and stay defensive to protect client’s capital. The mere existence of bear markets (not what causes them or how bad they will be) is one of the reasons we prefer rules-based trend following
to other forms of money management. The fact that bear markets exist and that trend
following does a good job of avoiding them, along with our expectation that bear markets
will continue to occur in the future, is what makes trend following a very useful approach
to managing serious money. Over full market cycles we’ve found trend following can
deliver significant returns while suffering much lower volatility and draw-downs than the
broad market, ultimately compounding capital at a higher rate for investors – that is good
news for trend followers.

We strongly believe that all clients should have an allocation to trend following and other
tactical strategies for the good news they deliver to investors during bear markets. We
will remind you once again- that bear markets always end, the sun eventually comes out,
and investors who avoid the worst of the bear drops have the most likely chance of
stronger gains than those who do nothing and attempt to live through the bears.

Clients and other readers are welcome to call or email with your questions. We always
welcome your thoughts and comments.

Ron’s Market Minute — As it is typical for bears to swing wildly, making weak assets strong
for a time and then making strong assets weak, we note that commodities which have been
the only strong asset, appear to be losing their grip.  Stay tuned. 

…read more