You know that I am bearish right now, states Steve Reitmeister of Reitmeister Total Return.
And you know the reasons why as they have been stated over and over again in the ongoing Reitmeister Total Return commentary. Our solution to tame the bear market is a combination of three inverse stock ETFs and three shorting bond ETFs to make money as the market heads lower.
In fact, in June alone the S&P 500 (SPX) is down -11.07% while our strategy has produced a +5.04% gain. So clearly this strategy is working. Right now you don’t need more evidence to support this outlook and investment strategy. Instead what we need to do is to eradicate two flawed bear market myths from your minds as they actually harm investors.
Bear Market Myth #1: You Can’t Time the Market
There is some truth to this. It is hard to predict what will happen tomorrow...or next week...or next month. But when you pull back to the big picture it becomes quite easy to be aligned with the long-term market trend.
Meaning that when you are in an extended bull market...then don’t sweat every little pullback and correction. Just stay bullish with a collection of healthy stocks with attractive valuations (the POWR Ratings are your best friend in this regard). Doing this will have you on the right side of the action the vast majority of the time.
A bear market is really no different...just the inverse. When the long-term trend has skewed negative, as it clearly has this year, then you need to sell stocks short to make money. The easiest way to do that is via inverse ETFs (shorting individual stocks is just too much hassle). This fallacy about timing the market arose from the money management community as a marketing ploy to stop you from moving your money out of their funds. Because when you do that...they stop making money on your account.
Yes, even as you lose 30-50% of your stock value in the bear market they want you to sit tight. And yes, they will still proudly take their 1% fee on your money for the benefit of their not-so-stellar advice. Long story short, perfectly timing the market is not in the cards. But when you appreciate the primary long-term trend you can easily align your portfolio to be on the right side of the market action.
Bear Market Myth #2: Hide Out in Cash
For those bold enough to recognize the bear and take action...most of them believe their only alternative is going to cash. Yes, cash is better than getting run over by the average bear market train taking an average 34% bite out of stock portfolios (and sometimes as much as 50%). However, this is missing the point that if the market is going down, the best way to make money is shorting the stock market. Meaning why just survive the bear market when you could thrive by generating ample gains?
Let me go one step further. Right now inflation is north of 8%. And your bank account is probably paying 1% or less. So right now going to cash is INSURING a hefty loss because of rampant inflation. Adding it altogether you now better understand our portfolio structure with three inverse stock ETFs and three ETFs to short the bond market. This is the right strategy now as there is a lot more downside to go on this bear market.
At some point, when things look the bleakest for the market, is when we will start taking profits on these positions and start bottom fishing for the next bull market. Just like winter...bear markets don’t last forever either. So you have to be prepared for that change of season and employ the strategies that work best in that environment.
Here, too, timing will NOT be perfect. But we can be effective enough to ensure that we pocket ample amounts of our bear market gains. And then align ourselves with the new bull market that will emerge. It’s hard to picture it now in the face of all this downside devastation. Yet with over 40 years of investing experience I have seen my share of these cycles and will help keep us on the right side of the market action.