Bear Market Strategy and Opportunity

  • The global economy is heading into a recession.
  • Global share markets are in bear market territory.
  • In a bear market, stocks go down.

When you think back to the GFC, or the COVID sell-off, what was your number 1 regret? 

The majority of investors tell me that it was not selling early enough, despite their instincts telling them to do so. And then not having a "proper" amount of cash ready to deploy into stocks at ridiculously low levels.

Are you going to look back in 12 months and kick yourself for making the same mistake twice? You may never be presented with these opportunities again so lets not waste it.

To protect yourself in a bear market, you don't rotate into defensive stocks. Why? Because a stock is a stock, and stocks go down in bear markets.

The best defense in a bear market is to raise your levels of cash, as much as possible and as early as possible. This serves two purposes. Firstly, it levels out the downside. Secondly, it gives you firepower for when the bear market is over and you get presented with a once in a multi-year opportunity to buy stocks at extremely cheap levels. 

What if you are holding managed funds, ETF's, or an SMA? My opinion is that these vehicles cannot deal with bear markets.The reason is because most are not allowed to move to a majority cash position when stocks are in free-fall. They have to stay invested to a certain extent and they are unable to move quickly enough. 

As a quick side note, at Fairmont Equities, we looked into operating an SMA (Separately Managed Account) with one of the biggest platform providers in the market (who shall remain nameless). When we met with management, we were told that we had to abide by a certain number of rules when it came to investing for our clients. Two of these rules we couldn't accept. The first was that we couldn't trade during the day. Our orders had to be in before the market opened for their back office to execute during the day on our behalf. Once the market was open, any new orders that I wished to place on behalf of my clients had to wait until the following day. The second rule was that we were not allowed to hold large levels of cash. We had to be mostly invested at all times. 

Because of this, I believe that many SMA's are likely to be struggling in this environment. SMA's, along with managed funds, would be seeing their values deflate here because of a lack of nimbleness, and an inability to hedge with cash.

Having a normal share trading account is, in our opinion, the ideal way to navigate a bear market. It is why we continue to offer our investors their own share trading accounts. This allows us to move in and out quickly, and allow us to move to whatever cash level we see fit to protect their wealth. 

Our managed service can move to 100% cash if we have to. And right now, our clients are sitting on large, defensive positions of cash, patiently waiting for the right time to get back in.

Remember wishing you could have maximised the opportunities created by the GFC? I don't want my clients making that same mistake again and experiencing that same feeling of regret.

Great wealth is created by laying the right foundations in times like this.

If the GFC didn't work to your advantage, or you could have done a lot more with that opportunity in hindsight, then now is your chance to maximise this bear market opportunity by having the cash ready, being patient, but also opportunistic enough to step in every now and then. I know that this is quite distinct from what most advisers and fund managers are doing at the moment. 

The first 12 months after the bear market can see some of the strongest returns and this is what we all need to focus on at the end of the day. That is, the inevitable opportunities. We are scanning the market every day for clues as to what is showing early signs of strength. 

I remember at the COVID lows, we were stepping back in only a few days after the low, a few positions here and there, probing the market. Even 3 months after the low, we were still a lone voice in being bullish on stocks. By the time everyone else caught on, the easy money had already been made. There looks to be more pain ahead in this market at the moment, but we remain focused on maximising the inevitable opportunities when we come out the other end.

Is it time to set yourself up for the big opportunities?

At Fairmont Equities we work with active investors who have greater than $500,000 to invest in the share market.  You get a proactive, personalised service and advice directly from me, the business owner. We are a firm of only 4 people, so you know who you are dealing with, and we get to know you. 

As we only deal in shares, we’re specialists, we’re not jacks of all trades.

We help you manage your share portfolio whether it is in your name, a company, a trust, or a Self Managed Super Fund (SMSF). 

We provide advice to retail, wholesale, and institutional clients.

Every stock we recommend and trade we recommend is carefully analysed using both fundamental and technical analysis.  This means you get the best possible advice.

We only charge a brokerage fee of 1%+GST per transaction. We have no other ongoing fees. 

The number one complaint that we hear from investors is that it is easy to buy, much harder to sell.

We do dozens of free portfolio reviews each year and almost 100% of the time there are stocks in people's portfolios which have suffered horrendous losses. What would it be like to have nipped those in the bud earlier? What would it then be like to have had that larger amount of capital put to efficient use in a good company that has actually been trending up the whole time?

Our core business is helping investors like you manage their share portfolios. Our philosophy is simple:

Find good companies, pick the best entry/exit point, let that advantage compound over time.

Being active in the market doesn't mean you trade every day. We are happy to hold stocks like MQG as long as they are going up. Why sell it? But if something is not going to go up, then you need to have a strategy to sell. Maybe this means doing a trade every couple of weeks or so. That is not being a trader. It is managing risk. It means making the most of your share portfolio, being efficient with your hard earned capital. 

So if you’re grappling with how to get better returns and you would like to try and maximise the opportunities that will emerge from this stock market weakness, then please give us a call on (02) 9002 3260.

Alternatively, leave your details below and I will give you a call back.

Michael Gable, founder and managing director of Fairmont Equities