Mind on Money: Don't just run away from a bear market

Marc Ruiz Times Columnist

Foot travel through wilderness is hard. Every time I go into a wild place, such as our mountain region parks or the north woods, I am reminded even using the best topographical software and incredible tools like Google Earth to plan a route, you never really know how tough a hike is going to be until you’re trudging down a trail with a 40-pound pack on. I have yet to find a back country hike easier than it looked on a computer screen.

This particular trek had been one of those hikes. Eight miles didn’t seem that far on the route planner, but after fording the Snake River three times, which meant hiking with wet feet, and discovering some river bank grade that didn’t really show up on the topo map, the South Border Trail of Yellowstone was starting to get the best of the group. The four of us were tired, crabby and ready to be done. It was also getting late.

I had put our designated and reserved wilderness camp site in my GPS, so I knew we were close. One more river crossing and another quarter mile. I plowed through the river without changing into sandals. I decided my boots could dry tomorrow while we were fly fishing. My group was about 200 feet behind me; I figured they would do the same.

The campsite was where it was supposed to be, sitting in the late afternoon shadow of the Two Ocean plateau down a short side trail. As I walked down the side trail, I looked back to see my friends had changed into water shoes and were still back on the river. I also noticed the trail was surrounded by wild raspberry bushes. Since I was separated from the group, just to be safe, I shouted out a tired “hey bear,” not expecting it to matter.

The reaction was immediate. Eighty feet away, upslope from the campsite, a head popped up from the berry bushes and swiveled toward me. There was a grizzly bear in our campsite, and a bear changes everything.

Bear markets change everything as well. The best designed financial plans, the most brilliant trading strategies and the most over-confident investors around the backyard barbecue can all fall victim to the raw brutality of a bear market, and this, my friends, is what we have all trudged into this week.

The technical definition of a bear market is when the stock market declines 20% or more over at least a two-month period of time. The NASDAQ composite index has been in a bear market since April 21, the S&P 500 joined this week. Of the widely watched indexes, only the Dow Industrials remains out of bear territory for now.

Like a grizzly bear in a campsite, a bear market can be terrifying. The last bear market decline experienced in the U.S. occurred during the COVID lockdown in March of 2020. While this bear attack was absolutely brutal, with the S&P 500 down 34% in one month, it was also extremely brief. The last bear market decline was met with a fiscal and monetary response unrivaled in scope, but it also happened while Americans were distracted with the pandemic. Recovery was quick and fairly painless.

Historically, bear markets have had more persistence. Research available from First Trust indicates on average a bear market lasts about nine months, with an average decline of 35%. Using some intuition, I feel like we are about 4-6 months into the current market cycle, but of course it’s impossible to know for sure.

Like grizzly bears in Yellowstone, bear markets are a natural part of the economic landscape. Those who choose to enter the wilderness, or enter the financial markets as investors, must do so accepting some of the risks inherent to the environment.

When encountering a grizzly bear, some of the outcome related to the experience is dependent on the behavior of the hiker as well as the reaction of the bear, which is also true with investors and financial markets.

Distance solves a lot of challenges when encountering a bear in the wild, time horizon serves the same function for investors in a bear market. Those who were over-exposed to stocks with money needed in the next five years need to think very tactically. Those whose capital needs are further off can be strategic and even opportunistic. Most importantly, rarely is it a good idea to simply run from a grizzly bear or a bear market.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.

To view Marc's past articles please visit https://www.nwitimes.com/business/columnists/f-marc-ruiz/