If you're not scared of what's happening in your stock portfolio you probably aren't paying attention.
The first quarter was the worst for US stocks since Q3 of 2022 and the first negative quarter of any sort since 2023. The damage didn't really spare anyone, but Consumer Discretionary was the hardest hit, falling over 11% for the period and bouncing off the over-hyped 20% decline required to qualify as an official "Bear Market".
I've seen a bear market or two in the last 25 years. This is what they feel like. Relentless. Capricious. Mean.
Need an example? How about the Worst Stock of the Quarter, the until recently widely beloved Deckers Outdoor:
DECK closed the quarter down 50% (nearly to the penny) from where it was trading before beating and raising last January 31st. And, as is generally the case with stocks, shares went down much faster than they went higher, falling 22% in one day and scarcely bouncing higher since.
Deckers was a wildly successful investment over the last 4 years. Adding Hoka to the seemingly unkillable UGG brand drove DECK up more than 4 fold in 3 years. The shares were due for a pause, now DECK investors are just trying to stop the bleeding.
I don't want my readers to be among those just trying to stay alive. We're here to win and success requires a process, in good times and bad. There are rules to follow in a Bear market. Rules for staying alive and healthy when the tape gets ruthless. Your mileage may vary but I learned most of these 5 rules the hard way; by losing money.
Paying tuition at the School of Crashes is insanely expensive. Let me push you up my learning curve a little bit so we can survive this together:
5 Bear Market Rules
One: Don't Ignore the Problem
Bull markets are great for trading platforms. Volumes explode and everyone is a market expert. Besides, what's more fun than opening an app and watching your portfolio grow, day after day? Nothing.
A funny thing happens when stocks reverse: people stop looking at their portfolios at all. Brokerage logins fall 20-40% during market corrections over 10%. The number of investors even opening their statements drops as much as 50%. The problem gets worse as corrections get deeper.
I was on CNBC nightly from 2006 to 2009. During the early stages of the Great Financial Crisis our Fast Money ratings were the highest they'd ever been or ever would be as we did our best to explain the ongoing disaster in real time. By the March 2009 market bottom ratings were a fraction of the peak and the show was being sponsored by scammy magic wallets.
Of all the rules this one has the quickest fix. Open your statements. Every day all day if you're a professional. Weekly if you dabble in stocks and monthly at a bare minimum.
I spent the entire weekend looking through some of the worst charts I've ever seen. I don't even own Target and looking at the stock made me so sad I had to call my mom (which has more to do with family stuff than Target itself, but still).
Two: Stick to what you Know
Bear markets aren't just Bull Markets turned upside down. Fear and Greed live in the same part of your brain but they are different things. Flat markets are analytical. Bull markets are Giddy. Bear markets are skittish, emotional and hyper-volatile in both directions. The resulting price action resembles a mirror image but it's not. You can buy dips and go away in a Bull tape. Trading a bearish tape is a full-time job.
If you're new to Bear Market tapes the temptation to become a dedicated short seller is huge. My advice from personal experience is to avoid that urge the way professional athletes should avoid dabbling in MMA and boxing.
Want an example on shorting being hard? PVH reported last night. They own Calvin Klien, Tommy Hilfiger and dress shirts. Tons of foreign exposure. Been a great short all year. Last night the company missed estimates and took down guidance.
Naturally PVH is up 20% as I write:
PVH short interest is up 30% over the last 3 months. Hard to say how many of those new Bears jumped in ahead of the conference call but suffice it to say, today's price action isn't what they were looking for.
The extent to which bad news is "priced into a stock" is unknowable. Bear markets have a higher degree of difficulty. Trying to make up for lost winners with Hail Mary shorts almost never works. When in doubt, just don't play.
Rule 3: Be Healthy
This is always good advice but especially applicable here. Losing money is stressful. Not looking at bank statements because you're afraid of what you'll see is INSANELY stressful. Stress leads to lousy health habits which makes you feel bad and feeling physically ill will lead to making worse decisions.
I used to refer to this rule as "Sell Until You Can Sleep" but that's not quite the same thing. Selling feels great during bad tapes but the fact is most people who bail at the bottom neglect to get long again ("I'll wait for another pullback"). Chances are when you open that statement it's either not going to be as horrible as you think or there will be simple things you can do to slow the bleeding (not being on margin, for instance).
It's taken me a while to understand how powerful controlling your health can be to your overall performance not just investing but life.
This is a much longer conversation. For investing purposes, it's enough for now to observe the basic rule, directionally. Take more walks. Drink less booze. Get some sleep. You'll be amazed how much it helps.
Rule 4: Make Lists
I wrote about this (and made a starter list) as this sell-off started cranking up about a month ago. I've since added some names and started building positions for full members in the Round-UP+. The idea is to pick a handful of stocks you really like and a price at which they'd just be too good to refuse for the long haul. The proverbial stocks you'd want to throw in a drawer and leave to your children. Bear markets go longer and deeper than most people think so we're not putting the cash to work all at once but in blocks of 20% or 25%. Pick a price well below where the stock is currently trading and start buying when and if shares get there.
Use the negative sentiment to build positions. Pick levels below where you think a stock can possibly get and don't be afraid to change the list as the facts and fundamentals change. These are stock ideas, not suicide pacts.
Here's my list right now:
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