markettrend advisors - coping with bear markets 023009
DESCRIPTION
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.TRANSCRIPT
Coping with Bear Markets
Don Lansing, Chief Investment Officer
2© 2009 MarketTrend Advisors, Ltd.
The S&P 500 Delivers a LOST Decade
>30% S&P 500 DECLINE over the past 10 years
Did your strategies protect you?
Active “tactical” asset allocation requires a reassessment of the market environment
Are stocks now cheap? Or is another shoe about to drop?
3© 2009 MarketTrend Advisors, Ltd.
Secular Market Cycles
Market Moves in Broad Cycles lasting 15-20 years typically. Rising Secular BULL market driven by expanding P/E ratios
Increasing investor enthusiasm brings in “marginal” investors. Declining Secular Bear/Flat market driven by declining P/E ratios
Investor “disgust” pushes money out of the market. “Cyclical” Markets are shorter-term market trends, e.g. 1-5 years
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Secular Markets in More Detail
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What This Means for Investors
Secular Bull Market Maybe one year out of four is a loser with losses typically
single digits. Buy and Hold works! Just ride the wave higher. Most recent Secular Bull Market was 1982-1999 Most mutual fund managers would have “come of age” during
this Secular Bull Market.
Secular Bear/Flat Market About half the years are losers with double-digit losses
common. Buy and Hold does NOT work. We must adopt more ACTIVE strategies.
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Do Traditional Strategies Help?
Typical Asset Allocation Approach Set Allocation Targets According to Investor Objectives/Risk Rebalance to your targets: Annually or every 6 months Forces a Buy Low – Sell High Approach
Setting Targets: Rule of 100 or 120 Rule of 100: 100 – Age = Equity Allocation For a 50-yr old Investor, 100 – 50 = 50% Stocks; 50% Bonds/Cash Rule of 120: 120 – 50 = 70% Stocks; 30% Bonds/Cash
In a Secular Bull Market: The higher the % stocks, the better! Rule of 120 is a winner.
In a Secular Bear/Flat Market: Beats the Market but returns are Mediocre.
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Results of Asset Allocation
50/50 split of stocks/bonds rebalanced every 6 months Offers some protection and outperformance, but quite mediocre
UP 14% over 8 years versus S&P which is DOWN about 30% Drawdowns still are significant due to equity exposure
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
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Why Preserving Capital Is the Key to Success
You will easily beat the market if you can avoid or limit losses during bear market periods.
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Managing Risk
Preserving capital the key to successful investing
“Macro” or market risk We want to limit our exposure to weak market periods
Adds performance Lessens volatility Can serve to protect other long-term assets
“Micro” or position risk We want to prevent blow-ups in a position
At what point is a personal preference Tools used are a personal preference Knowledge, Maintenance, Stomach
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Beware the (Cyclical) Bear
“Cyclical” Bear Market Began in Early January 2008
What does this mean for investors? A strong likelihood that the market will decline by >20% and
will do so in a hurry That rallies will be sharp but brief – mirror image of pullbacks
and corrections in a bull market Cyclical Bear Markets Typically Last about 10-12 Months
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Follow the Trend: Invest in the Bull; Avoid the Bear
Growth of $100,000 Investment
50,000
70,000
90,000
110,000
130,000
150,000
170,000
190,00050/50 stock/bond portfolio rebalanced
S&P 500
Stocks in Bull Mkts/Cash in Bear Mkts
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Or Be Aggressive and SHORT the BEAR
Growth of $100,000 Investment
50,000
100,000
150,000
200,000
250,000
300,000
Rebalance Stocks every 6 months
S&P 500
Stocks in Bull Mkts/Cash in Bear Mkts
Profit in Bear Mkts
13© 2009 MarketTrend Advisors, Ltd.
Secular Bear Markets Mean Big Loss Years
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!
Dow Jones Industrial AverageDISPERSION OF ANNUAL STOCK MARKET CHANGES
Percent of Years During Secular Cycles(8+ Cycles: 1901-2008)
RANGE108 Yrs
AVG54 YrsBULL
54 YrsBEAR
<-10% 21% 4% 39%
-10% to +10% 31% 30% 33%
>+ 10% 47% 67% 28%
RANGE108 Yrs
AVG54 YrsBULL
54 YrsBEAR
<-16% 16% 0% 31%
-16% to +16% 50% 50% 50%
>+ 16% 34% 50% 19%
Copyright 2003-2009, Crestmont Research (www.CrestmontResearch.com)
14© 2009 MarketTrend Advisors, Ltd.
In Conclusion
We are in a secular Bear/Flat market which could last for several more years. Be alert!
We are in a cyclical Bear market – so, ...
You MUST protect assets first and profit second. NOT LOSING is the key to success.
Thus, you need to be more ACTIVE in your investment strategy.
Protect from Market Risk: It is easy to determine when we are in bear market periods. Inverse ETFs offer a simple way to protect assets.
Protect from Position Risk: In a bear market, the predominant trend is DOWN. Actively protect ANY gains and expect uptrends to be fleeting.
MarketTrend Advisors specializes in strategies that help you cope with bear markets while benefitting fully from bull periods.
15© 2009 MarketTrend Advisors, Ltd.
MARKETTREND ADVISORS
Win in UP and DOWN markets!
Keep in Touch with MarketTrend Advisors by Keep in Touch with MarketTrend Advisors by sending us an email at sending us an email at
Take a look at our performance and ask for our Take a look at our performance and ask for our regular client updates. regular client updates.
Together, we can beat the bear!Together, we can beat the bear!
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MARKETTREND ADVISORS
To contact us:MARKETTREND ADVISORS, Ltd. 3720 Gattis School Road #800 Round Rock, TX 78664
Business hours: Monday through Friday 8:00am to 5:00pm CST Phone: (512) 255-8722Fax: (512) 255-8732Email: [email protected]
Web site: http://www.markettrendadvisors.com
17© 2009 MarketTrend Advisors, Ltd.
MARKETTREND ADVISORS
DisclosureDisclosure
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.
The information included herein is for informational purposes only and does not constitute specific investment advice.
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.
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.
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.)