Dont Fear The Bear


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Dont Fear The Bear

  1. 1. RES-4011B-U FEB 2009 Page 1 of 2 UK STRATEGY REPORT DON’T FEAR THE BEAR When share prices begin falling dramatically, it can appear that your only option is to sell in order to limit losses. We disagree. As a long-term investor, the difference between success and failure may be determined by your actions during a stock market decline. No one can predict a bear market, but we believe Keep a Cool Head. Try to Stay Calm. remaining focused on your investment strategy is the Bear markets are usually quite frightening. The stock best way to weather one. It’s called a bear market market decline can be dramatic. It almost seems like because it resembles a bear’s attack — rearing up on there is no end in sight and you’ll hear many predictions its hind legs and swiping its paws downward. A bear about how much lower shares could go. market is a sharp, prolonged decline in share prices, usually 20% or more, almost always triggered by In every bear market, the rebound has been unexpected unexpected events or economic conditions. As a result, and has started when the outlook appeared bleak. In investors can frequently be caught off guard and bear markets, investors should keep a cool head and become susceptible to the anxiety caused by the a steady hand and try not to be swayed by extreme reports of gloom and uncertainty. predictions of doom and gloom. It’s unlikely that you will ever meet a real bear face to Make No Sudden Moves. Stand Your Ground. face. However, if you’re a long-term investor, it’s almost You should never jump into or jump out of the stock a certainty that you will experience a bear market. Our market. We believe it’s almost always a bad idea to advice is this: Stock market declines are normal, happen make a long-term investment decision in reaction to frequently and are not a reason to sell quality investments. short-term market fluctuation. If your portfolio contains quality investments that are well-diversified, our best Our advice for surviving a bear market is almost identical advice is to stay the course during market declines. to survivalist Peter Kummerfeldt’s advice if you come face to face with a real bear: During and immediately after market declines, the temptation almost always exists to sell quality share ‘When faced with a real bear, keep a cool head. Try to and bond investments, and change your strategy. stay calm. Do not yell, scream, kick or fight. Don’t panic. Commodities, investments proclaiming to hedge Make no sudden moves. Stand your ground. Never try market risk, property and other alternatives often to outrun a bear; it will only make matters worse. The become popular after a poor stock market performance. injuries that occur are more a function of what the human does to resist than what the bear is capable of doing.’ Rather than chasing the best performing investments, stay committed to your long-term strategy. Although DECLINES IN THE UK STOCK MARKET past performance is not an indication of future results, 1948 – 2008 over the long term an investment in the stock market Dip Correction Bear has historically performed well. However, investors 5% of More 10% or More 20% or More who try to predict when to get into and out of shares can pay a severe penalty for not being fully invested Number 52 21 11 when the market is rising. Per Year About 1 1 every 1 every 3 years 5.5 years Source: Ned Davis Research, 02/01/1948 to 31/12/2008. Past performance is not a guarantee of future results. The UK Stock Market is represented by the MSCI United Kingdom Index. The MSCI United Kingdom Index is an unmanaged index and cannot be invested into directly.
  2. 2. RES-4011B-U FEB 2009 Page 2 of 2 Missing just 50 days with the highest returns since How the Bear Can Help You 1968 would have wiped out all of your gains. Even Bear markets provide long-term investors with the missing the best 10 days over 40 years would have opportunity to buy quality investments at a discount. reduced the annual gain from an investment in the The price you pay for an investment matters. Why? FTSE All-Share from 6.6% to just 4.5%. Generally, the lower the price you pay for a quality investment, the higher your potential investment MISSING THE BEST DAYS return during the long term. This advice also holds Annual Return for an Investment in the FTSE All-Share true for market dips and corrections. Days Excluded Average Annual Return* Here’s one way to think about unsettling markets: 0 6.6% Market declines return investments to their rightful 10 4.5 owners — those who understand what they own, and 20 3.1 why they own it. Although some market declines can 30 1.8 be painfully long, the vast majority of bear markets are 40 0.7 relatively short — around 16 months on average. This 50 – 0.2 is compared to the average bull market, which lasts 60 – 1.1 four-and-a-half years.* Remember, bear markets tend 70 – 1.9 to recover just as abruptly as they start. 80 – 2.7 90 – 3.4 100 – 4.1 Take Action to Survive the Bear Again, we believe your success as an investor may Source: Bloomberg, Edward Jones. FTSE All-Share Index, 31/12/1968 to 31/12/2008 depend on your actions during a market decline. Make *Dividends not included. Past performance is not a guarantee of future results. The FTSE All-Share is an unmanaged index and cannot be invested into directly. an appointment with your Edward Jones financial adviser to develop a portfolio that can help you reach your long-term goals through rising and falling markets. Many also will argue that if you had missed just a handful of the worst days, returns would have been better. This is true, but predicting the worst days can Kate Warne, Ph.D., CFA be even more difficult than predicting the best ones. Market Strategist Many times the best days actually immediately follow the worst ones. * Ned Davis Either way, you’re trying to time the market, and it’s almost impossible to do that consistently. Instead, we think staying invested throughout market ups and downs is a better way for you to help achieve your long-term goals. Edward Jones Limited is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange. Registered in England and Wales No. 3403976. 11 Westferry Circus, Canary Wharf, London, E14 4HH.