Is This A Bear Market?

by Mike Holman

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Are we there yet?  The week before last, the TSX dropped 11%, last week it dropped 16%.  Oddly enough on Friday I was expecting the worst day so far since the Asian markets had crashed about 8% and the Japanese market had dropped almost 10% overnight.  When the TSX went down 5.5% I felt oddly relieved since I was expecting more.  5.5% drop in one day and I thought that was acceptable!  Yes, this is a bear market – not one of those cute and cuddly, babyish, koala bear type of markets where maybe you lose part of a year’s gain, but rather a far more vicious, huge grizzly bear that is intent on ripping out your insides until you sell what is left of your holdings.

I haven’t had the courage to actually see how much damage has been done to our portfolios, however I know that it won’t be as bad as the actual market declines for the following reasons:

  • We aren’t 100% invested in stocks – We started the year with 75% equities and 25% fixed income.  Now partway through the year I did switch some of the bonds to REITs – which have done ok, but not great.  Part of the bonds were real return bonds (known as Treasury inflation-protected securities in the US) which apparently haven’t done all that well for some reason.  Regardless, having any kind of non-equity investment in your portfolio will reduce the decline in a bad market.
  • Some of the portfolio is temporarily in cash – As I discussed a few weeks ago, we are moving our accounts to RBC to take advantage of the 1% bonus offer.  Since my wife’s accounts were invested in mutual funds, they were all sold about 2 weeks ago and the transfer was done in cash.  This was done because we wanted to convert her holdings into ETFs.  I checked on the weekend and the funds that she had been holding were down about 20% in the last two weeks.  Her investments represent about 1 third of our total investments so this cash holding will really help out.  The hard part of course is pulling the trigger to buy – that might take some courage!  I’d like to say this was the result of some brilliant market timing but of course – it was sheer luck!  Of course the falling dollar isn’t helping since all the cash is in Canadian dollars but what can you do?

Note [added Monday, Oct 13] – the various markets have all gone up some astonishing amounts so it looks like we should see a rebound in the Canadian market today.

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{ 4 comments… read them below or add one }

1 Sampson

I’ve had the exact same well though out luck as you. Earlier this year, I liquidated 90% of my mutual funds to buy individual stocks throughout the year, and a couple of weeks ago, started converting my wife’s portion into ETF’s.

As I result, I’m beating the market by an astonishing 10%. I guess that would mean something any other year, but not now… ;)

2 Four Pillars

Sampson – you should write a book about how you predicted the bear market! You might make a bit of cash with it.

3 Dividend Growth Investor

We’ve been in bear market since July :-(

We acceletrated the declines over the past 4 weeks however so it feels like the bear just started…

4 Sampson

Unfortunately, I didn’t exactly predict the bear market, since I pumped all my funds back into the market, but into individual equities. I just got fed up with getting dinged by mutual fund fees.

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