It's a bear market. Sure the market fell hard and rallied today, but word has it, we are in a bear market.
Okay. There. I said it. That, and $5.35 will get you a cup of coffee at Starbucks (SBUX) .
The truth is many stocks have labored in sectoral bear markets for ages. It isn't like we just woke up and found ourselves in Jellystone National Park running for our lives or at least running faster than our colleagues because that's who the grizzles are going to maul first.
Before I go into why the bear market appellation is worthless and gets us nowhere, let me tell you a story about bears.
Years ago I used to mountain climb. Oh boy did my mother like that. I am what's known as a 46er, meaning I climbed every mountain in the Adirondacks that are 4000 feet high, many of them in winter.
One time when we were done climbing I found a bear in our lean-to. He was rummaging through our stuff just like a bear is rummaging through your portfolio.
I didn't know whether to run or stand my ground. Isn't that where we are now, with many running, running out of tech, running out of health care, running out the remaining cyclical winners and streaming out of the banks as surely as if there will be runs on the darned things, which there won't because their balance sheets are incredibly good and many are busy buying as many shares as they possibly and legally can.
Others ran, I decided to stand my ground. What did I do? I always carried M&Ms with me when I climbed. I always carried a can of spam, vile I know, but it would survive thermonuclear war so it sure as heck can survive a trip up Mount Marcy. And I never went without Tabasco because of how atrocious spam tastes. This was pre-Frank's mind you.
So I took the bowl I liked to eat the spam out of - you don't want it wallowing in its own Gowanus like juices, and I filled it with M&Ms and I put it about 30 feet from the bear. Bears can smell sweetness for 10 yards no sweat and it turned and sniffed in the air and I could tell this one was going for it. Right before it could pounce on it, and me, I doused the M&Ms with the Tabasco. Darned bear came charging down and ran as fast as I can behind to a nearby tree.
I watched, knowing it could be life or death as that bear put his snout in the bowl, and started chowing down on those Tabasco drenched M&Ms. And wouldn't you know it, just started rasping as sure as if you chugged a bottle of Franks and it did exactly what you would expect, it ran headlong into the nearby river to cool its mouth and then took off like a bear out of hell.
Now I am not saying that you can outrun a bear. You can't. I am not saying that you can let him eat all of your food and then hope he doesn't turn on you.
I am saying that you have to be clever, you have to think, okay, I am not going to panic, I am going to use my head and I am going to outsmart the darned thing.
And exactly how do you do that? I have five surefire Tabasco sauced M&Ms that can make it so the bear doesn't eat you and you can think straight while the M&Ms do their trick.
First pronouncing something in bear market territory is no more valuable than pronouncing something in bull market territory. It just means that a stock that was up is now down. It doesn't mean that company's fortunes have changed. It means that investors have decided to bail because they know the bear is going to eat the ones that can't run as fast as they can. That's hardly an investment strategy.
I say if you examine individual companies and think about what represents value you can do better than you think. Take Home Depot (HD) . Here's a high quality company that just reported excellent numbers with a big buyback that is levered to fixing up a home, something people can do with the extra cash they got from tax reform, something that's explained by CFO Carol Tome on the call, not that anyone actually listened. As she talked the stock dropped five points. So then people say the quarter was bad. Then it went back up five points soon after. So the quarter was okay? Today shareholders outran the bear and it went higher. Did the fortunes of the company change? Not one whit. But how about the stock? Let me tell you something. If Fed Chairman Powell says he's winning against inflation whether it be in raw costs like oil or lumber or in housing or in autos or lumber or chemicals, that's Tabasco and the bear runs away. So should you bail now on Home Depot? Maybe when the stock was at $215 or $210 or maybe $205. But at $179? Hmm, doesn't seem all that smart to me, maybe, though, smarter than the average bear.
So, first, recognize that even in a bear market you can trick the ursine attacker by buying some stock in great American companies with fabulous balance sheets that will do well if the Fed decides to take a break from tightening.
Second, recognize that, oddly, the bear is using a two pronged fork to chow. One prong is extremely sharp, the president's tariff spear and that's going awry for certain. I see 25% as sure as all get out when the year begins although I would be pleasantly surprised otherwise. The other? A possibly rash well-sharpened prong meant to slow down economic activity even if it has a lot of collateral damage.
You need to use the vicious selling to look for stocks that are being stuck even as they shouldn't be. Now I understand in a bear market we always hear that there is no hiding. I have been in 11 bear markets in my time, 11 moments where you could trumpet that such and such a stock is in bear market territory or the averages are in bear market territory, or whatever else can scare the heck out of you, and only one, the bear market of 2007 -2009, destroyed more capital than you could make back for a reasonable time frame. When I shouted back then that you should take out any money that you might need for the next five years I meant it. Do you know it was so bad that it took five years to get back to where you were and many, many stocks never got there. The companies failed.
Which brings me to my third bowl of red hot M&Ms. If you pick stocks with accidentally high yields because they have fallen so low even as the balance sheets are pristine, you are going to look back at all of the "bear market" sirens and say, darn it all why in heck didn't' I just try to outsmart the bear instead of run for the hills?
The answer? You got scared. You stopped looking for opportunity. You gave up. You panicked. All legitimate reasons as a way to alleviate fear. All reasons that you will most likely regret when we come out of bear market territory, a man-made bear market with not one, but two grizzlies, President Trump and Fed Chairman Powell doing the blissful mauling not caring the least about your savings or your nest egg because that's exactly what they are chowing down on.