BEAR MARKET INVESTING - TCReport Oct'98 p.419

To brush up on bear market trading tactics, I am re-reading Andrew Sarlos' Fear, Greed and the End of the Rainbow (1997, Key Porter Books)...especially pages 16-17, 106-108, 145, 152 and sadly, Mr. Sarlos' last page 182. Here, from page 145, is Andrew Sarlos' rule #2 "You cannot expect to make money in a bear market. The name of the game is to preserve capital, earn a modest return, and have your capital available when the bear market is over."

I'm also trying to find Bear Markets: How to Survive and Make Money in Them by Harry D. Schultz (Prentice Hall, 1966) 322.645

Because so few investors have ever met a bear market, a snippet of advice from advisors who were around during the last one in 1973-74 might be in order.

In an interview with Barron's on August 31, 1998, Richard Russell, the editor and publisher of the Dow Market Theory Letter said, "All my signs say we are in a new primary bear market slump. What this means is that the major trend is down and it will continue down for months, even years." In the Barron's item, Russell outlined the three phases of a bear market. "The first phase, which is where we are now, is the one where we cut all the speculative foam and froth. The second phase, the longest-lasting, is where the market steadily declines due to deteriorating business conditions. The third and final phase is the liquidation frenzy, where blue chips collapse below realistic values and buyers emerge."

Geraldine Weiss, who has been publishing Investment Quality Trends* since 1966, and who generously exchanges her excellent twice monthly publication for mine, thinks that because the bear market was long overdue and started from extremely overvalued levels, it will probably be longer and more ferocious than usual. "Just as bull markets do not go straight up," Geraldine Weiss says in her mid-August issue, "bear markets do not go straight down. Stock prices TREND down--falling, rebounding, and then falling to lowerer lows. Because most investors are optimists, they are inclined to view the rebounds as the start of a new bull market. However, a bear market does not end until all of the preceding excesses are erased from stock prices and the fundament factors of price/earnings ratios, price/dividend ratios and price book value ratios again are attractive." I have included average yield in my table again. Assuming that all things eventually revert to the norm, we have a long way to go yet for better yields.
* Investment Quality Trends 7440 Girard Avenue, Suite #4 La Jolla, Calif. http://www.iqtrends.com

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