The Investment U E-Letter
Tuesday, April 1, 2003 Investing in a Bear Market
By Dr. Steve Sjuggerud
President, Investment U "In a bear market, he who loses the least, wins." Today's message is short. In fact, that's it above. While it sounds painfully boring, it's been the highest-returning, lowest-risk strategy of the last three years. The "he who loses the least wins" advice is from Richard Russell. Russell has written his financial newsletter for 45 years, making it the longest continuously running market commentary. He's seen more bull and bear markets than anyone. So it should be surprising that the best recommendation, in all his experience, is to do nothing. Russell is extremely smart. And he follows the right things (you'd be amazed at how many smart folks love to look at the wrong stuff). Over 45 years, I'm sure Russell has tried every trick in the book. Even today, in his newsletter he occasionally recommends a speculation here or there - a short sell of this or a quick buy of something else - in this bear market. But I think he's just passing time with these, to have something to write about. His core position is that this is a "primary bear market." And you don't make money in primary bear markets. If Russell is right, then the picture is grim. But bear markets are grim. The best graphic description of a primary bear market in history I've ever seen is on pages 108-9 of John Kenneth Galbraith's 1954 book The Great Crash, where he perfectly described the period of 1929-1932: "The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. "Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune… "The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. The bargains then suffered a ruinous fall. "Even the man who waited… and saw Wall Street become as placid as a produce market, and who then bought common stocks, would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, remarkable." Today's message is simple. It's a bear market. In a bear market, he who loses the least wins. Today's IU Crib Sheet - We all want to do better than "losing the least." But losing the least has been the most successful strategy over the last three years. And it may continue to be for years to come. While we can try various strategies to outperform cash, be careful of the stock market. Stocks are still more expensive in terms of value than they were at the peak in 1929.
- Learn more about Richard Russell, one of my favorite newsletter writers, at www.DowTheoryLetters.com
Good investing, Steve Back to Archive | 
