The first half of 2022 has come to a close and the bear market rages on, with no end in sight. Passive investors (index funds, mutual funds) are sporting solid losses of 20% or more so far this year, which is coming after stellar gains over the past several years. It doesn't take long to lose it, as the saying goes. It's like taking the escalator up and the window down.
While losses are part of the game of investing and trading, is it possible to sidestep the bigger losses or even produce some wins along the way? The answer is yes, but you must be willing do things differently.
You see, a bear market such as the current one has no end date.It could end soon or not. We have seen short-duration bear markets (two months) and long ones such as 2001-2003. Nobody rings a bell at the top or the bottom. We just need to recognize the conditions and adjust our style and tactics accordingly.
What does that mean exactly? The old rules for bull markets -- the playbook -- do not apply in a bear market. Further, just waiting for something positive to happen (it always does, right?) is simply wasted time and energy and leads to opportunity cost. That cost is missing out on the chance to make money or preserve capital.
What do we do? We wait patiently for the opportunities. Sell the rips, avoid buying the dips. We pay more attention than ever to the charts and technical, but with less emphasis on sentiment. That is usually a contrarian indicator, but in a bear market that sentiment is usually correct. Sell stuff into resistance when you have the chance. Strong rallies are opportunities to unload stocks. Big institutions have done this and continue to do it, so why don't you?
Lastly, go with the trend of the market. If it's down, embrace it and don't worry about missing out on the other side of the trade. Bearish trends can be very profitable if you decide to play it. Keep your trades on a tight leash, take smaller profits often and move your capital around. Don't be afraid to have high cash balances at all times.
We know bear markets are rare, but they happen and we need to be prepared. If you are, when the next bull run comes around you'll be ready for that next fight.