Business Columns & Blogs

What did you do in the 95-day bear market? Here are its lessons for how to invest now

Trader Michael Milano works on the floor of the New York Stock Exchange on Feb. 15.
Trader Michael Milano works on the floor of the New York Stock Exchange on Feb. 15. AP

Nothing illustrates the futility of market timing – buying and selling stocks while attempting to gain price advantage by predicting the high and low - than Christmas week 2018.

The bear market nadir was achieved on Christmas Eve, down nearly 20 percent for the year on most stock averages. The markets closed for Christmas Day. Then on Dec. 26, like a caged animal coiled up like a spring, the major stock indexes broke free, with the Dow Jones Industrial Average gaining over 1,000 points in one day – the largest daily advance in history.

Christmas is a busy time anyway, and family time for many people. In our household we dressed warmly for a day of skiing and outdoor adventure. We mourned my wife’s father, who had passed away several days earlier, and had our three adult children home for the first time in five years. I was hardly focused on short-term trading and volatility in financial markets.

Yet as I stood watching CNBC in amazement, the crawl at the bottom of the screen announced a high-volume reversal – strong upward movement in stocks on greater-than-average trading volume. It seemed so normal, natural and unexpected, and so perfect - that this particular turnaround would occur when the average person, at home for the holidays, drinking a toddy, enjoying family and friends, couldn’t care less.

Daly, Mark.jpg
Mark Daly

Unless you possess extrasensory perception, or your crystal ball is clearer than mine, you were better off staying fully invested for the 95 days of the 2018 Bear Market. Not one financial “expert” predicted that the market would bottom on Boxing Day. Most were predicting an economic recession in 2019, evaporation of corporate profits, and a steady climb in interest rates. If you had the fortitude to add cash or make 401(k) contributions, or rebalance to the worst-performing asset, you were rewarded in January.

According to Yale Hirsch of the Stock Trader’s Almanac, the “January Barometer” can be a useful tool, suggesting that 2019 could be a strong year for stocks. Since 1950, gains have occurred 68 percent of the time (47 of 69 observations) when early January results are positive. During January 2019, cash flowed in from 401(k) plans, college savings programs, portfolio rebalancing, and proceeds from tax-loss selling in the fourth quarter.

And what will the rest of 2019 bring? Truthfully, no one has a clue, and the “early warning system” noted above has little or no predictive value. Remember that when the news is bad, and experts predict the worst, and you feel nausea in your stomach, true long-term investors remain steady and focused, using such opportunities to improve their physical, mental and financial health.

Mark Daly is an investment management analyst and a partner in The Perpetua Group.