Strategies for bear market investing

Paradigm for energy investors & others

For non-specialists, a Bear Market occurs when financial assets start to structurally decline instead of rising as they should. In plain English, the investor loses money, which tends to put people in a bad mood, as very few investors have a sense of humor when it comes to their money.

This begs the question, are we still in a bear market? Since markets have a habit of going up or down from one day to the next without anyone really understanding why, it was decided that a true bear market implies a 20% drop from a previous high, without anyone really knowing why.

Let's apply this rule and take for example the MSCI (Morgan-Stanley Capital International World) index which is supposed to represent the evolution of the world's stock markets.

The index since the beginning of the century went from a little less than 1400 on January 1, 2000, to 3240 at the highest at the beginning of 2022 to fall back to 2486 last Friday June 21st, that is to say a drop of a little more than 20%.

We therefore entered the fourth bear market of this new century, the first one seeing the prices of this index drop by 50% from January 2000 to March 2003, the second one recording a 60% drop from the end of 2007 to March 2008, the third one linked to Covid lasting only three months but recording a 33% loss, and for the fourth one, which has just started, we are already at -22.6% of losses at the trough although the index has risen since.

This observation immediately leads to the following question:

When can we go to be fully invested in equities ex-energy?