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Coping with Bear Markets Don Lansing, Chief Investment Officer
The S&P 500 Delivers a LOST Decade <ul><li>>30% S&P 500 DECLINE over the past 10 years </li></ul><ul><li>Did your strategi...
Secular Market Cycles <ul><li>Market Moves in Broad Cycles lasting 15-20 years typically. </li></ul><ul><li>Rising Secular...
Secular Markets in More Detail
What This Means for Investors <ul><li>Secular Bull Market </li></ul><ul><ul><li>Maybe one year out of four is a loser with...
Do Traditional Strategies Help? <ul><li>Typical Asset Allocation Approach </li></ul><ul><ul><li>Set Allocation Targets Acc...
Results of Asset Allocation <ul><li>50/50 split of stocks/bonds rebalanced every 6 months   </li></ul><ul><li>Offers some ...
Why Preserving Capital Is the Key to Success <ul><li>You will  easily  beat the market if you can avoid or limit losses du...
Managing Risk <ul><li>Preserving capital    the key to successful investing </li></ul><ul><li>“Macro” or market risk </li...
Beware the (Cyclical) Bear <ul><li>“Cyclical” Bear Market Began in Early January 2008 </li></ul><ul><li>What does this mea...
Follow the Trend:  Invest in the Bull; Avoid the Bear
Or Be Aggressive and SHORT the BEAR
Secular Bear Markets Mean Big Loss Years <ul><li>Whereas Secular Bull Markets almost never have a really bad year, Secular...
In Conclusion <ul><li>We are in a secular Bear/Flat market which could last for several more years.  Be alert! </li></ul><...
M ARKET T REND   A DVISORS <ul><li>Win in UP and DOWN markets! </li></ul><ul><li>Keep in Touch with MarketTrend Advisors b...
M ARKET T REND   A DVISORS <ul><li>To contact us: </li></ul><ul><ul><li>M ARKET T REND  A DVISORS , Ltd.   3720 Gattis Sch...
M ARKET T REND   A DVISORS <ul><li>Disclosure </li></ul><ul><li>MarketTrend Advisors, Ltd. is an independent, S.E.C-regist...
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MarketTrend Advisors - Coping With Bear Markets 023009

This presentation provides a historical review of the returns of prior bull markets and bear markets and recommends an active investment strategy to capture gains and avoid losing money during secular bear markets.

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MarketTrend Advisors - Coping With Bear Markets 023009

  1. 1. Coping with Bear Markets Don Lansing, Chief Investment Officer
  2. 2. The S&P 500 Delivers a LOST Decade <ul><li>>30% S&P 500 DECLINE over the past 10 years </li></ul><ul><li>Did your strategies protect you? </li></ul><ul><li>Active “tactical” asset allocation requires a reassessment of the market environment </li></ul><ul><li>Are stocks now cheap? Or is another shoe about to drop? </li></ul>
  3. 3. Secular Market Cycles <ul><li>Market Moves in Broad Cycles lasting 15-20 years typically. </li></ul><ul><li>Rising Secular BULL market driven by expanding P/E ratios </li></ul><ul><ul><li>Increasing investor enthusiasm brings in “marginal” investors. </li></ul></ul><ul><li>Declining Secular Bear/Flat market driven by declining P/E ratios </li></ul><ul><ul><li>Investor “disgust” pushes money out of the market. </li></ul></ul><ul><li>“ Cyclical” Markets are shorter-term market trends, e.g. 1-5 years </li></ul>
  4. 4. Secular Markets in More Detail
  5. 5. What This Means for Investors <ul><li>Secular Bull Market </li></ul><ul><ul><li>Maybe one year out of four is a loser with losses typically single digits. </li></ul></ul><ul><ul><li>Buy and Hold works! Just ride the wave higher. </li></ul></ul><ul><ul><li>Most recent Secular Bull Market was 1982-1999 </li></ul></ul><ul><ul><li>Most mutual fund managers would have “come of age” during this Secular Bull Market. </li></ul></ul><ul><li>Secular Bear/Flat Market </li></ul><ul><ul><li>About half the years are losers with double-digit losses common. </li></ul></ul><ul><ul><li>Buy and Hold does NOT work. </li></ul></ul><ul><ul><li>We must adopt more ACTIVE strategies. </li></ul></ul>
  6. 6. Do Traditional Strategies Help? <ul><li>Typical Asset Allocation Approach </li></ul><ul><ul><li>Set Allocation Targets According to Investor Objectives/Risk </li></ul></ul><ul><ul><li>Rebalance to your targets: Annually or every 6 months </li></ul></ul><ul><ul><li>Forces a Buy Low – Sell High Approach </li></ul></ul><ul><ul><li>Setting Targets: Rule of 100 or 120 </li></ul></ul><ul><ul><ul><li>Rule of 100: 100 – Age = Equity Allocation </li></ul></ul></ul><ul><ul><ul><li>For a 50-yr old Investor, 100 – 50 = 50% Stocks; 50% Bonds/Cash </li></ul></ul></ul><ul><ul><ul><li>Rule of 120: 120 – 50 = 70% Stocks; 30% Bonds/Cash </li></ul></ul></ul><ul><ul><li>In a Secular Bull Market: The higher the % stocks, the better! </li></ul></ul><ul><ul><ul><li>Rule of 120 is a winner. </li></ul></ul></ul><ul><ul><li>In a Secular Bear/Flat Market: Beats the Market but returns are Mediocre. </li></ul></ul>
  7. 7. Results of Asset Allocation <ul><li>50/50 split of stocks/bonds rebalanced every 6 months </li></ul><ul><li>Offers some protection and outperformance, but quite mediocre </li></ul><ul><ul><li>UP 14% over 8 years versus S&P which is DOWN about 30% </li></ul></ul><ul><li>Drawdowns still are significant due to equity exposure </li></ul>Growth of $100,000 Investment $60,000 $80,000 $100,000 $120,000 $140,000 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 S&P 500 Stocks and Bonds Rebalanced Every 6 Months
  8. 8. Why Preserving Capital Is the Key to Success <ul><li>You will easily beat the market if you can avoid or limit losses during bear market periods. </li></ul>
  9. 9. Managing Risk <ul><li>Preserving capital  the key to successful investing </li></ul><ul><li>“Macro” or market risk </li></ul><ul><ul><li>We want to limit our exposure to weak market periods </li></ul></ul><ul><ul><ul><li>Adds performance </li></ul></ul></ul><ul><ul><ul><li>Lessens volatility </li></ul></ul></ul><ul><ul><ul><li>Can serve to protect other long-term assets </li></ul></ul></ul><ul><li>“Micro” or position risk </li></ul><ul><ul><li>We want to prevent blow-ups in a position </li></ul></ul><ul><ul><ul><li>At what point is a personal preference </li></ul></ul></ul><ul><ul><ul><li>Tools used are a personal preference </li></ul></ul></ul><ul><ul><ul><li>Knowledge, Maintenance, Stomach </li></ul></ul></ul>
  10. 10. Beware the (Cyclical) Bear <ul><li>“Cyclical” Bear Market Began in Early January 2008 </li></ul><ul><li>What does this mean for investors? </li></ul><ul><ul><li>A strong likelihood that the market will decline by >20% and will do so in a hurry </li></ul></ul><ul><ul><li>That rallies will be sharp but brief – mirror image of pullbacks and corrections in a bull market </li></ul></ul><ul><ul><li>Cyclical Bear Markets Typically Last about 10-12 Months </li></ul></ul>
  11. 11. Follow the Trend: Invest in the Bull; Avoid the Bear
  12. 12. Or Be Aggressive and SHORT the BEAR
  13. 13. Secular Bear Markets Mean Big Loss Years <ul><li>Whereas Secular Bull Markets almost never have a really bad year, Secular Bear/Flat Markets have a really bad year a shocking 1/3 of the time! </li></ul>Dow Jones Industrial Average DISPERSION OF ANNUAL STOCK MARKET CHANGES Percent of Years During Secular Cycles (8+ Cycles: 1901-2008) Copyright 2003-2009, Crestmont Research (www.CrestmontResearch.com) 28% 67% 47% >+ 10% 33% 30% 31% -10% to +10% 39% 4% 21% <-10% 54 Yrs BEAR 54 Yrs BULL 108 Yrs AVG RANGE 19% 50% 34% >+ 16% 50% 50% 50% -16% to +16% 31% 0% 16% <-16% 54 Yrs BEAR 54 Yrs BULL 108 Yrs AVG RANGE
  14. 14. In Conclusion <ul><li>We are in a secular Bear/Flat market which could last for several more years. Be alert! </li></ul><ul><li>We are in a cyclical Bear market – so, ... </li></ul><ul><li>You MUST protect assets first and profit second. NOT LOSING is the key to success. </li></ul><ul><li>Thus, you need to be more ACTIVE in your investment strategy. </li></ul><ul><li>Protect from Market Risk: It is easy to determine when we are in bear market periods. </li></ul><ul><ul><li>Inverse ETFs offer a simple way to protect assets. </li></ul></ul><ul><li>Protect from Position Risk: In a bear market, the predominant trend is DOWN. Actively protect ANY gains and expect uptrends to be fleeting. </li></ul><ul><li>MarketTrend Advisors specializes in strategies that help you cope with bear markets while benefitting fully from bull periods. </li></ul>
  15. 15. M ARKET T REND A DVISORS <ul><li>Win in UP and DOWN markets! </li></ul><ul><li>Keep in Touch with MarketTrend Advisors by sending us an email at </li></ul><ul><li>[email_address] </li></ul><ul><li>Take a look at our performance and ask for our regular client updates. </li></ul><ul><li>Together, we can beat the bear! </li></ul>
  16. 16. M ARKET T REND A DVISORS <ul><li>To contact us: </li></ul><ul><ul><li>M ARKET T REND A DVISORS , Ltd. 3720 Gattis School Road #800 Round Rock, TX 78664 </li></ul></ul><ul><ul><li>Business hours: Monday through Friday 8:00am to 5:00pm CST Phone: (512) 255-8722 Fax: (512) 255-8732 Email: [email_address] </li></ul></ul><ul><ul><li>Web site: http://www.markettrendadvisors.com </li></ul></ul>
  17. 17. M ARKET T REND A DVISORS <ul><li>Disclosure </li></ul><ul><li>MarketTrend Advisors, Ltd. is an independent, S.E.C-registered investment advisor. We are not registered as a broker or dealer, nor do we have any partners or employees who are affiliated with any broker or dealer. See our S.E.C. Form ADV, Part II for official declarations. </li></ul><ul><li>The information included herein is for informational purposes only and does not constitute specific investment advice. </li></ul><ul><li>Investing in the stock market assumes risk and no assurance is made that investors will avoid losses. No representation is made that investors will or are likely to achieve profits or incur losses comparable to those shown. Performance results are shown for illustration and discussion purposes only. Data from third parties has not been verified, however all information presented is believed to be accurate and fairly presented. All performance figures in this presentation do not include the management fees, commissions, or taxes which would reduce overall returns. </li></ul><ul><li>Regarding future performance: Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to corresponding past performance levels. </li></ul><ul><li>S&P 500 refers to the Standard & Poor’s 500 Large-Cap Corporations Index. The index is designed to measure performance of the broad based US market and consists of 500 American companies. This index is used for comparative purposes only. (Data is taken from http:/www.stockcharts.com.) </li></ul>

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