Skip to main content

Sound Advice: February 2, 2022

Should I sell my stocks before the upcoming bear market?

Yes, that may be sensible. If this idea works for you, make sure to sell them about a week before the market crashes. Then all you need to do is buy back in about a day after the market hits the bottom. If you can manage this extraordinary feat, you will make history.

Seriously, however, unless you can perform the above magic, you will have to consider your investment time horizon. Following temporary downturns, markets always recover.  Sometimes the upturn is slow, but in the aftermath of the pandemic plunge, the rebound was unusually rapid. 

Market drops tend to be unnerving. The more useful view of these events is that stocks are on sale at lower prices.  There is, of course, the temptation to think that this time everything’s going to zero, though if that’s the case it really doesn’t matter what you do.

To be successful in this ill-advised approach, two correct decisions are required: When to sell? When to buy?  Keep in mind the fact that during the time you are not invested, you will not receive dividends from your investments.

Over the past four decades, during one of the longest (if not the longest) bond market rallies in history, skittishness in the stock market often gave rise to thoughts of redeploying to bond investments.  Looking ahead, however, the prospect of significant increases in interest rates and reduced financial stimulus by the Federal Reserve Bank argues strongly against moving to bonds.  When these actions take place, bond prices will fall.

Whether to sell stocks to avoid a bear market is a serious question, but unless you are a miracle worker who can time the market consistently, you will end up a loser.  Market drops are regular occurrences.  In the majority of years, there’s an interim pullback of 10% to 15%.  Less often, there are more dramatic downturns.  But these are part of a long-term pattern.

If you sell now and the market continues to rise, you will kick yourself. If you sell and the market drops, you will be happy. But then you will ask, ‘When should I buy in again?  If you buy too early and the market continues to drop, you’ll be upset.  If you wait too long, you’ll be disappointed.  Bearing in mind that there are only a few “great” days in any year when stocks perform spectacularly, if you miss those you miss the year.

I cannot give you a definitive answer.  That is why stocks are a long-term investment. The longer you hold them, the more profitable they tend to be.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883 

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com

 

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: March 10, 2021

The ABCs of Stock Picking After decades of analyzing stocks (and funds) and investing for clients, I'm happy to share in plain English what's involved, what works, and what doesn't.  Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of .300 or better is considered quite good.  With stock picking, you need to do better than .600, which means you have many more winners than losers. No one gets it right all of the time.  It's not even close.  Wall Street shops all have their recommended lists and the financial media regularly hawk 10 stocks to buy now. Following that road usually is a direct route to disaster.  Don't be tempted. Let's begin with the big picture: The stock market goes up and down over time, but the long-term trend is up.  When there's a rally under way, everyone feels like a genius.  When the market hits an air pocket, though, with few exception...
Post a Comment
Read more

Sound Advice: June 17, 2020

Rock and a Hard Place Regardless of your age, impressions from childhood linger.  As the first days of summer approach, we all remember the feeling that accompanied the end of a school year.  Yet as much as many of us would like to believe we again have the summertime freedom to do as we wish, the reality is quite the opposite. Although months of confinement and limitations on social interaction have increased our personal discomfort and severely impacted the business community, our current situation is not analogous to the end of any school year.  It’s quite the opposite. There is every reason to continue wearing face masks, social distancing, and avoiding close contact with others.  Nothing suggests that we can modify our behavior significantly or resume patterns of daily living we enjoyed only a few months ago. There are no meaningful advances in medical treatments.  At best, there are attempts to combine different approaches...
Post a Comment
Read more