In his column for Barron’s, Mark Hulbert reports that his analysis shows that “the best bear market strategy may very well be to stay 100% invested in equities.” He says that looking at the data on Hulbert Financial Digest-monitored advisors suggests this approach because “each of the top-five advisors for performance since March 2000 is fully invested right now” and those who switched to cash during the 2000-02 and/or 2007-09 bear markets “failed to get back into the stock market at anywhere close to the bottoms . . . [and] therefore missed out on a good chunk of the markets’ subsequent recovery.”
First place among the top performers, Marc Johnson, editor of The Investment Reporter, explained his outlook: “Some observers are alarmed by corrections and bear markets. They see these market setbacks as disasters. Our view is different: stock market setbacks can create wonderful buying opportunities.” Similarly, second-place top performer Kelley Wright of Investment Quality Trends says: “My thought is the market is simply taking care of business it was on track to do last summer” and “there are some really good values in some really great companies.” Hulbert notes that the top performers share “a bias toward value stocks,” which “historically have lost less money during bear markets” and often pay dividends.
Looking at market timers yields the same recommendation: “a far safer bet is choosing to withstand the bear market losses in order to guarantee you’ll capture 100% of the bull market’s gains.” Less than half of market timers had lower exposure at the bottom than at the top in previous bear-to-bull transitions, suggesting they are “bearish when they should be bullish, and vice versa.” Only 6% of market timers correctly predicted the top and bottom of the 2007-09 bear market. Of those who did meet one of Hulbert’s three tests for the 2007-09 bear market, less than half also did so in the 2000-02 bear market, suggesting successes may have been more luck than skill in market timing.