We're In Bear Territory-- Don't Become Bear Meat

The last 6 months has turned by definition into a Bear Market, where we've seen more than a 20% drop in stock market prices over the last 6 months. I have received a few calls asking if we should sell everything. This is where I earn my keep to prevent making a financially disastrous decision, since wholesale selling here is more than likely 5-10% away from the bottom. The question of selling everything and attempting to time the market is folly, with numerous empirical studies highlighting this type of behavior; when do you sell? when do you get back in? Typically small investors sell at the bottom, wait for the market to recover 10%, then they buy back in; in other words, they miss a 10% pop in prices, then they buy into the top of a bear market rally, then sell again at the bottom of that failed rally. This could happen several times, to the point that what was a 20% loss ends up being a 30% or 40% loss due to making emotional decisions.

This is not the market price level to sell into, this is the market price level to buy into. So investors, particularly retired investors, whose portfolios undoubtedly contain some allocation in bonds, this is where we take some of that bond allocation and buy into stock prices when they're low. That is, sell bonds to someone who desperately wants to buy your bonds from you, and buy stocks from someone who desperately wants to sell them to you. This is the level-headed approach, and also the approach that happens to help even out investment returns over the long run. In this market, let the other guys make the mistakes, and capitalize on their mistakes.