Plans for an eventual bear market?

16th Sep '17 by Logic

63 comments 18266 reads

We are currently in a bull market. It has been a bull market for quite some time. Looking back, bull markets tend to eventually end. When this happens, by what trigger, and what course it will take, are all unclear (at least to me).

My question to you, fellow presumed investors, is how do you intend to prepare for an eventual bear market?

Do you intend to:
A) Continuously invest now and throughout any bear market.
B) Short the market when you think it will turn down/after it has started to turn down.
C) Increase the proportion of your savings that you hold cash (like Warren Buffett, although he has size constraints that individual investors do not), or alternatively in bonds?
D) Move investments into less cyclically affected shares or markets.
E) Do nothing as "this time it's different (TM)", and bear markets will never happen.

Or something else?

Please share what you intend to do, and whether you intend to do so before a bear market or if you think you will act after it begins? Also feel free to share what approach you took during the last bear market, and how that worked out.

Disclaimer: I am not saying I want a bear market to happen, I do not wish to upset anyone and I am not trying to influence anyone's financial decisions. I just want to have a nice pleasant discussion on the matter and for people to share their strategies.

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Edinburgh Investor

16th Sep '17

There is no way to call the end of a bull run is there, but indeed you want to have a plan in place for sure to execute when it does happen. Top slice, short the ftse, pull out your weeds etc. I dont think we will see any dramatic falls without some catalyst (famous last words!), we currently have inflation, potential rate rises, populism, Nth Korea antics, a tech bubble (in some peoples opinion). I have seen a few discussion threads on here that suggest the trend is moving away from growth stocks and trending towards value, which is an interesting discussion that could perhaps extend this run. I'm keeping a close eye on the current market leaders, any hiccups could maybe spell trouble?

Orangetree

An end to the bull market can happen in various ways. But one event is keeping me awake is the deteriorating North Korean situation, where if a miscalculation takes place then millions of lives would be lost (given NK has possession of the H-Bomb). So, either Donald Trump backs down and are open to talks or the odds of war will keep increasing with every test.

gus 1065

Hi Logic - thanks for opening up the thread.

Mainly a mixture of B, C and D for me with a bit of selective buying/dividend reinvesting when the opportunity arises. I had already put about 15% of my share portfolio into cash at the start of the summer and have opened a geared short ETF position on about 3% of my portfolio using UK3S (essentially a 3x inverse return of the FTSE 100 index). Likewise, I've shifted/top sliced a few of my high growth winners into more defensive holdings although suspect that when the tide goes out all stocks will suffer. I've also put a bit more cash into gold related stocks recently - again more with capital preservation in mind than a view to making a decent return. I was possibly a bit early to take money off the table but remember from 2008 that sell side liquidity dried up very quickly when the markets started falling so have tried to be ahead of the game.

In terms of the likely catalyst for a correction, there are plenty of possible causes and I suspect several might bite at the same time. Numerous global issues, compounded in the UK by the disruption caused by Brexit and the mischief emanating out of Corbyn and friends in the context of an ongoing minority Conservative government and some pretty meaty issues over the likes of public sector pay settlements, funding for the NHS, ongoing terrorism threats and the continuing budget constraints.

As Orangetree says, North Korea is the elephant in the room for global politics although I don't think the solution to this particular problem is in the gift of the US. It will take China and to a lesser extent Russia to pull NK to heel and perhaps the only way to prevail on them to take action will be to make it in their interests (for example by intimating a willingness to counter balance NK's nuclear ambitions by facilitating South Korea and Japan with their own nuclear deterrents - something that China would surely try to prevent).

No need to panic in my opinion but always worth checking the roof for leaks before the deluge comes.

Good luck all.

Gus.

Plans for an eventual bear market?

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Logic

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