How to Avoid a Bear Market and Make Money
By Dale Gillham | Published 25 November 2019
A week can be a long time in the stock market, while at other times it’s not long enough. It seems the high-tech world we live in has shrunk our perception of time, given that we are getting more and more drawn into instantaneous information that may provide an edge to make money in the market.
But is this really good for us? I would argue that it isn’t because too much information leads to poor decision making. Let me explain.
Stock market defies speculation
Over the last 18 months or so, we have been subjected to speculation that the Australian stock market crash will crash and that the Australian economy will move into a recession, yet the market made a new all-time high in July. Despite this, individuals sold their shares and moved to defensive assets or cash. But was this the right decision? In hindsight the answer is no, but what if the market did cash or we did go into a recession, should we be worried? My answer would also be a resounding no.
Since 1960 the stock market has only been in a bear market (or a market crash) around 10 times over the past 60 years or 720 months and they only lasted a total of 149 months or 21 per cent of the time. The average fall into a market low since 1960 takes 14.90 months and falls 36.50 per cent, with the average since the 1987 crash being just over 11 months and 36.40 per cent. But the exciting part about this is that the average rise in the first 12 months following a market fall is 34.93 per cent.
So, if the market does fall away, you can choose to exit and put your money into cash, and then wait 12 or so months before investing again, which will obviously have very little impact on your financial position. While this is a little over simplified, it does demonstrate two things: firstly that the stock market is not to be feared and secondly, by taking a more active approach you will reap the rewards while lowering your risk.
Top and bottom performing sectors
During what was a more bearish week, it’s not surprising to see that most sectors were in the red, although Consumer Discretionary and Consumer Staples were up around 1 per cent. The stocks that performed well in the Consumer Staples sector include A2M, Coca-Cola, Select Harvest, Blackmores and Metcash. While the stocks that helped the Consumer Discretionary sector to rise include Aristocrat Leisure and Cash Converters.
The worst sectors last week were Utilities and Financials, both of which were down around 3 per cent with information Technology not far behind.
Looking at the top 100 stocks, A2M is up over 15 per cent after it delivered good news to the market. Aristocrat also announced strong results and was up over 9 per Cent, while ALS Ltd was up over 7 per cent and Cash Convertors was up over 4 per cent. Coca-cola and Qantas also did well last week.
The worst performers were Link and Auznet, which were both down over 7 per cent so far, while financial stocks, Westpac, Magellan and NAB were all down around 5 per cent.
What’s next for the Australian stock market?
As I said, a week can be a long time in the stock market given that the week prior I was leaning towards the market potentially rising after going nowhere for four months. However, last week the market flipped and, at one stage, it was down around 2.25 per cent trading below the low that unfolded three weeks ago.
I will keep saying this until I am blue in the face. Right now it’s important to be patient as the market will decide on a direction very soon. I am confident it will settle over the coming week or so, and while I am prepared for further falls to reach my earlier target of below 6,400 points, I am still leaning towards the market being bullish over the medium to longer term.
If the market continues to fall into next week, it will be short and sharp, and nothing to be worried about. If it rises instead, then I believe it will trade through the previous all-time high of 6,958 points that occurred in July prior to Christmas.
Let’s get into this week’s stocks of interest. Watch the video to find out more.
Good luck and good trading!
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online.