You CAN Make Money In a Bear Market, Here's How! (Episode 37)

I don't think there's really any question about that. Uh, although I do think that labels do tend to get tossed around too much at the end of the day. Do you really care if it's in a bull market or a bear market, whether it's a stock market at the bond market, all you really care about is, you know, can I take my a hundred dollars and turn into more than a hundred dollars and you know, not go by way of 80 or $70 if you know what I mean? You know, that's what typically happens to people. So, you know, you look at today's market unless you use the S and P as a proxy, but you know, some people would call it a trading range. I don't think it's a trading range at all. And I think if you look at what I've said on Twitter and LinkedIn, really over the past year, plus I've been kind of documenting in timestamping my thoughts on all this.

And I mean, so far so good. This is a down trend which started to hint that it was on its way at the beginning of last November, 2021. And since January 4th of this year has been a pretty relentless trend down. I've referred to it in the past as nickels and dimes investing, uh, where, you know, you lose 5%. I should say, you make 5%, you lose 10 and you make five and you lose another 10. And you know, you kind of can't win for losing so to speak. And this is why I am such a big fan of, uh, kind of flipping the script and having people look at a bear market as something to be welcomed, anybody can make money in a bull market. If you know how to make money in a bear market, you've got a special secret sauce. That's not so secret because we're talking about

Sure. So let's look at why they panic and matter of fact, let me turn this one on you. My good friend. Why do you think that people panic in a bear market?

Yep. I would agree with every single word of that. And I would add one more sentence, short sentence. The reason that people look at bear markets and say, oh my God, what am I gonna do is because that's what they've been told is what they're supposed to do. And who says that there's a rule that the stock market has to keep going up. And that's the only way to make money. I mean, literally we talked about this last time we were together. Okay. If you look at two ETFs, S P Y Jerry, think everybody knows tracks the S and P 500 and sh which is the exact opposite. Okay. And there's some funky math rules because if you hold it too long, et cetera, and the mathematics of loss, and, you know, I'm sure you even looked that up, but look at S P Y and sh.

So, I mean, they're just two different securities. If you own S P Y at certain times, and you make money and you own sh at certain times, and you make money, what's so freaky about, you know, like, why is that a problem? And so to me, I've just never understood why people don't invest in the market that they are given, not the market they wish they had. And this is a time where you're gonna get a mixture of both. You're gonna have sharp rallies because that's what bear markets do. And you know what I mean, six months from now, I don't know if we're gonna be at a bull market, a bear market. All they know is I will have a toolbox that allows me to express my investment preferences and beliefs as a researcher, because the ETF world, and I guess the options world on top of that is, you know, it makes it so that you can do that. And frankly, you know, one of the biggest casualties of this is the investors that over focus or exclusively focus on individual stocks. Because if all you do is look for stocks to buy and you get to the point where 90 plus percent of the stocks in the market ultimately end up lower for the year, which is of what happens in bull, in, uh, bear markets. You know, you just keep looking around for answers that you don't have.

Well before I answer that, just so everybody knows, because you know, we're recording this, so you can't really see us, but Kate just did one of the best impersonations of the robot from lost in space. For those of you who go back that I've ever seen

Robinson, that's it. So Mr. Smith, right? Wasn't that the guy was always worried about everything, kind of like, uh, today's investor. Yeah. So here's the thing, the broad topic here is how do you play defense and knowing that your defense can also be an offensive weapon. Okay. So you can use SA if you have a stock portfolio and I'm just using sh as an example, by no means, am I recommending it or anything like that? My recommending and everything like that. What I will tell you is I keep as long a list of defensive ETFs in my research lab as anybody. I know there's because you want to have as many weapons as you can first to defend a bear market, and then to exploit it for your benefit and put that up against your offense. Remember, I'm always playing offense and defense at the same time.

So how you play defense if a lot of time is really just like putting together an all offense portfolio. Okay. If you look at the other side of your portfolio and say, okay, how do I want to play defense? Well, there are ETFs out there now, which allow you to do something as simple as, Hey, whatever the S and P does. I wanna do the opposite. What's so scary about that. You know, I didn't say put all your money in it, just like, I wouldn't say put all your money in anything, you know, there are ETFs out there where you can perform the opposite of the NASDAQ, the small cap, the EFA international index, the emerging markets. There's even one that does the opposite of Bitcoin. And I'm not talking about leverage here. Although there are some with leverage. I'm not a huge fan of that, but I will say, you know, there are certain segments, uh, energy, uh, financials, etcetera, where you don't have a lot of liquidity going the other way.

And so if you're not an options type that wants to buy, put options on these things, to try to either defend or make money in a down market for oil financials, et cetera, there are, you know, two times ETFs or single inverse ETFs. So again, I'm talking inverse entirely here, but there's so many ways to do it. And then beyond that, you also have these sort of baby step versions of these things. Okay. We talked last time, I think about tail. And I think we asked some pretty good feedback about that. Okay. Tail is a symbol from ETF that has 90% of its money in us treasuries. What's scary about that 10 year bond, but the other 10% is in Vic's call options, which means when volatility, you know, next time it goes from the twenties to the seventies. Okay. You can make so much on that.

It can reverse your losses in anything you have long and maybe even make your portfolio profitable. And there's so many other gradients of these things that mix offense and defense, or allow you to isolate offensive defense. And finally, K, over the last 20 years, going back to when you could only do this through mutual funds, this is my craft. Not necessarily just the defensive, but being one of the few people I think anywhere that I can find, cuz I look for them all the time. But in the professional investment research space, to be able to have a full arsenal of defensive weapons, which first can be used to hedge against a market decline. And then when things get really crazy, exploit it to your benefit and try to make money in the down market,

On? Well, you know, like I think any good investor, I try to be my own worst critic and constantly figuring out what I'm doing wrong and how I can do it better. And it's funny because you know, in all the discussions that I've had with you and other Podcasts hosts and, and, and things, I talk a lot about the markets and about technique and all this, but I don't talk a lot about the fact that I pour through thousands of charts a week. My dad taught me when I was 16, so I'm 42 years into it. And I'm a firm believer that the market tells us a story through the charts is what I teach to all my interns and young mentors in the business. The problem is we, you know, a lot of people just don't listen. So I mean, think about it, you know, whether it's the R word, the, I word the F word.

I don't mean the F word. I mean the fed. Okay. I knew yeah. so, I mean, who cares, how it, this turns out as an investor? I don't care about any of that. All I care about is that the stuff that I buy goes up or if I buy it and it goes down that I don't let it go down 20, 30, 40%, you know, like a lot of retail investors kind of, you know, let happen to them. And so, yeah, I mean the charts to me, and I'm not talking one of the biggest issues with technical analysis in 2022, and this was not an issue until now, but so many retail investors are technicians. Okay. The problem is they're all working off the same playbook, kind of like you answered to my question to you before, and they're all just kind of copycatting everything else that everybody does.

And when in the history of business, any business, they're just copying what the other guys do well, was that like a great strategy? Okay. You're better off trying to be a step ahead of the game. And I think the way that you do that is yes, you use technicals use price action, but you can't look at the same moving averages and momentum indicators and all that stuff, because I'm telling you Kate and everybody else listening in 2022, that S H X, T doesn't work. Okay. It doesn't work the way it did and the markets are running away from that type of thing. Okay. So what does then, so what does is two things, one multiple timeframes. Okay. It pains me every time I see somebody looking at a stock or a ETF or whatever, and they're talking about the markets and they're using a single timeframe to me on a regular basis.

I'm looking at, and this is not because I always had to do this, but again, you deal with the market that you're given, not the market that you wish you had. So what that means in the charts is that I'm looking at hourly two hour, four hour daily charts, three day charts, weekly charts, okay. On a regular basis. Why? Because, you know, everybody, who's kind of fixated on, oh, I'm just gonna look at the daily chart. I'm just gonna look at the hourly chart. If you don't know what's going on around it. Okay. These things happen in waves, moves up and down. They happen in waves. The short term indicators in the charts start to move first. And then you see how much sustainability there is in that move. Okay. And that mm-hmm that to me is the biggest thing. The second is, I think it's not enough to know how the indicators are supposed to work.

Classically. You have to know how they are evolving with all the algo money, hedge fund money, index money, et cetera. Again, with the stock picking thing. Okay. I'm not a stock picker per se. I do look at a lot of stocks all the time and I'll own them. But the stock market itself with individual stocks, a lot of times people say, well, why is my healthcare stock going down? You know, they're doing so well. They just come out with good earnings. Well, if the sector's being sold off, you're going to, you know, you're the baby with the bathwater, right? So these are things about modern investing, I think, and modern ways to pull portfolio out of, to pull money outta your portfolio or modern ways to grow your portfolio. That really aren't given enough shelf space right now, because you can't scream above the big time media, because it doesn't sell a space.

It? And this goes all the way back to your earlier days in the business, where with I B D where you're doing so much of this, now I will say this, okay, let me postulate something else. As we come toward the end of our time here, isn't it possible that the reason that, that stock that hypothetical stock okay, is not being sold off the next day because of something that happened in the earnings report, but maybe it's being sold off because so many people wanted out of their index funds. And that stock happened to be one of the biggest ones in the index fund. You can't stop. The tide is like trying to stop a hurricane. Okay? You can't do it. You can't do it. So that to me is what I think is lost, how markets work and especially how they work today and how they work differently.

They don't work completely differently, but there's a lot of things that are different from years and decades ago. And it's kind of like everybody is still just studying the textbooks, right? Ask any recent student. And I work with a lot of people that were students within maybe the last five, 10 years of, of their lives. And they come outta the classroom. They're like, oh, this is how the real world works. But there's so many people. But when it comes to technical analysis, when it comes to understanding the markets, when it comes to what works in trading, I think that there's so much of that where they're still in the classroom and you know, this is real life,

Yeah. I'm glad you asked that question Kate, because it, it kind of fills in what I was saying before about stock market down trend, et cetera. So I look at it this way and I think I may have mentioned this the last time. You I'll say I'm a bit of a ShowMe, you know, I'm not from Missouri, but I think I was there once and this market look, the thing I noticed in technicals that works a lot more than like moving averages and things like that is just very simple trend lines. Okay. And so we've been in a down trend, uh, in the S and P since January 4th, we've had a couple of fake out breakouts as they call them just above the trend, the prevailing trend line, and that rolls back over and dies. And as this continues to happen, that is the thing that I think people have to look out for more than anything else that basic trend lines are, have to be respected more than ever. Why not? Because I think so, but because there's a ton of money in algo and hedge fund and index fund land that apparently is making decisions based on these things. So just knowing that and knowing who else is surrounding you in the room and the big, big room that is wall street is really something that has to be front of mind for traders, whether they've been doing it for, you know, 42 years like I have, or, you know, 42 minutes,