Money

Three Strategies to Prepare for the Coming Bear Market

The U.S. stock market has been on a remarkable winning streak over the past decade.

Among the 47 global stock markets I track, as measured by the Vanguard Total Stock Market Index (VTI), the U.S. market has ranked #1 and #4 over the past 10 and five-year periods, respectively.

Yet, over the past 12-month period, the U.S. stock market’s performance has been middling at best, ranking #26 out of #47 global stock markets. And that underperformance is accelerating.

In 2017, the U.S. stock market ranks a lowly 42nd out of 47 on the global stage.

Bear Markets are Inevitable…

…The question is not “if,” but when.

Here’s why I think a bear market may be lurking around the corner.

First, life has its seasons, as do stock markets. And the rhythm of the seasons suggests that a bear is overdue.

The S&P 500 hasn’t had a 20% pullback since August 2011. Junior brokers working at major stockbroking firms were still in high school at the time of the last major stock market pullback.

Second, the psychology of the market has shifted from fear to greed.

The Bitcoin mania suggests that financial euphoria is creeping back into financial markets. Last week, I went to a presentation on a Bitcoin fund in London. It was held in a casino. The story of Bitcoin’s surge from three cents to as high as $5,000 got a lot of gamblers’ pulses racing.

Market lore has it that you should worry when the shoeshine boy is recommending stocks. Now, I don’t have a shoeshine boy.

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