Bespoke Investments had some great stats the other day on this bear market:
Since the bear market started on October 9th, 2007, the Russell 3,000 has lost $9.58 trillion in market cap, which is more than the index’s current market cap of $8.74 trillion.
Of the Russell 3,000’s current members:
— The average stock is down 53.16% during the bear market.
— Just 4.13% of stocks in the index are up during this bear, meaning more than 95% of stocks are down.
— A whopping 59% of stocks in the index are down more than 50%.
— 7.3% of stocks in the index are down more than 90%, nearly twice the number that are in the black. There are more stocks down greater than 93% than there are stocks that are up.
— 125 stocks in the index are trading for under $1/share, while just 20 are trading for more than $100/share.
— Nearly half (46%) of the stocks in the index are trading for less than $10/share.
On January 31st I wrote about the severe deterioration of the general stock market during bear markets (using MCD’s as a possible short candidate). You’ll often hear that bear markets are “a stock pickers market”. I don’t subscribe to that. If you’re fighting the trend the odds of you finding strong stocks in a severe bear market are close to 0% (or 4.13% according to Bespoke). This is why I approach the market with a broad top down methodology. Understanding the general trend of the market substantially increases your odds of making money. This is the main reason why anyone can look good in a bear market, but only the best investors look good in a bear market (assuming they’re not permabears or short funds). Knowing how to avoid falling in love with the long side is all too important. The stock market is not your girlfriend and it is definitely not your wife. It’s even better. It’s a series of one night stands (or however many nights you prefer). With no strings attached. Why swim against the tide?
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.