See You Over There, Bear

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This remains the most complex investment environment of our lives. Bubbles are bursting everywhere, and inflation is spiking like a beach volleyball player at the net. Recession is on the lips of many forecasters, and the Fed is about to cause a massive shift by changing just one letter in their policy approach: QE becomes QT. But even as the long, bubbly era of Quantitative Easing shifts to Quantitative Tightening, the fact remains: this is THE BEST time of our lives to be tactical traders, instead of traditional investors.

The primary technical trend for stocks has been rolling over since last November, and we are starting to play the game I call “counting backwards.” For example, the S&P 500 recently traded at the same level it traded at more than 15 months earlier. And, the 1-year return for the Vanguard Balanced Fund, an iconic representative of “buy and hold” investing, is -6.6%. That’s the lowest level other than the bottom of the Dot-Com Bubble and the Global Financial Crisis. Something is different.

And part of that something is this: bonds aren’t helping you like they used to. This sets up a situation that most investors are entirely unfamiliar with, and thus unprepared for.

What do traders do? Run from the bear? Hide (in cash) from the bear? NO!!! Attack the bear! How? The same way I wrote about in this space several months, and about 15% on the S&P 500 ago.

  1. Acknowledge that investing is not like it was, and won’t be for a while
  2. The longer you hold an investment, the more likely it will disappoint you. That’s what happens after 13 years of nearly uninterrupted stock market bliss.
  3. Bonds are no longer a legitimate asset class for investor portfolios. That is, unless you are going to tactically own (a.k.a. “rent”) bond ETFs, bonds are a dead asset class.
  4. Investment success for rest of this decade will be the result of balancing offense and defense in ways many investors and financial advisors have yet to familiarize themselves with.
  5. There will be amazing opportunities to make high returns from the stock market, and eventually the bond market too. But assuming those will occur in a straight line like they have for years is akin to creating your own weapon of mass financial destruction.
  6. This is my 6th bear market, and I’ve lived to talk about them. I’ve been through plenty of bull cycles too. Importantly, through it all, I created and developed a process, and learned to evolve with the markets. And most importantly, I stayed humble. I encourage you to do so too.

Related: Summer Investing Forecast