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Big Bears Are Predictable - Wise Up!

Big Bears Are Predictable - Wise Up!

As financial advisers will go on and on about, it is a bad idea to speculate on short term market fluctuations. Or for a primer on this theory, you could check out the very good Betterment article with moving pictures and everything by clicking this button:

Now what this is saying is that if you invest early and consistently and you will do fine, sometimes you will do great. This is a low risk way of wealth building because it will work it just takes time. I consider this advice common knowledge and thus I am not going to write an article about it.

Another precursor to my Big Bear theory is something known as dollar-cost averaging. Here is a quote from Investopedia.com :

What is 'Dollar-Cost Averaging - DCA'
Dollar-cost averaging (DCA) is an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. The investor purchases more shares when prices are low and fewer shares when prices are high. The premise is that DCA lowers the average share cost over time, increasing the opportunity to profit.

DCA is something I wholeheartedly recommend doing. It is a step beyond the fire and forget method of throwing 300$ into a balanced investment account every month. Some months you put in more, some months you put in less based on the performance of your metric. Fairly risk free way of operating because no matter what you are investing early and often. 

Ok now on to the main point of my article:

Big Bears Are Predictable

Take a look at the home value charts below if you would:

taken from the interactive page on Economist.com

Here are some observations you could have made in 2011 based on information from 2011 graph #1:

  • This is a Big Bear market (to say the least)
  • I could buy something now and probably make money in the long run

Here are some observations you could have made in 2013 based on information available in 2013 graph #2:

  • Wow this is a very Big Bear market but it might be done with soon.
  • I could buy something now and probably make money in the long run

Here are some observations you could make right now in 2016 based on information available right now in graph #3:

  • Geez the market still hasn't recovered completely (because of factored in inflation)
  • If I bought right now I wouldn't make as much money as if I bought in 2011 or 2013, but I will still probably make money in the long run. 
  • I should have bought a house in 2012 

You might be saying "well duh hindsight is always 20-20." And I would have to agree with you on that. My point is this: When we were in the middle of that bear market IT WAS OBVIOUS WE WERE IN THE MIDDLE OF A BIG BEAR MARKET! I didn't need to wait 3-6 years to see that 2010 was a bad time for stocks and house prices, I knew that in 2010 because I was a living sentient being. What I did not know was that the recovery went above and beyond most people's expectations after that point. You could be contrite once again and point out that realizing you are in a bear market which is common knowledge is not useful information. If anybody said that to me I would laugh at them. Just because it's common knowledge doesn't mean you can't use it! I believe it is the opposite. You can use this information very well, and indeed many smart investors did just that and made a killing when the market rebounded. 

To change gears yet again, you who as a financially savvy person reads these types of blogs no doubt follows the DOW and the other boiler plate indexes. So you at any given time will have an idea of where we are as a nation and as individuals. But what's the use paying attention at all if it doesn't trigger any action on your part? Not only must you be ready to act, but you must be capable of acting.

Here are my suggestions to you as someone who now has the confidence that they will be able to recognize a Big Bear market when they are in one:

  1. Immediately (this week sometime,) change your auto deposit routine to utilize a dollar cost averaging scheme. This will help you pay attention to the markets every month and get a feel for investing in general.  
  2. Build a safety net of at least 6 months of living wages. Not only is a safety net useful for handling a crisis, it can be used for seizing opportunity as well. I believe Homer Simpson said it best.

If that article didn't get your brain juices pumpin' I don't know what will. And FYI I bought a house in 2010 because I knew we were in a Big Bear market so that means I practice what I preach and it works. Pay attention to the things in this blog and you might make better decisions and have a better life as a result. Thanks for tuning in!

DDAVE
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