Check out the benefits of a bear market in this episode!
112 – Benefits Of A Bear Market
Christian Financial Perspectives
English - July 05, 2022 18:10 - 20 minutes - 19 MB - ★★★★★ - 11 ratingsInvesting Business Education Homepage Download Apple Podcasts Google Podcasts Overcast Castro Pocket Casts RSS feed
Previous Episode: 111 – Questions For Down Markets
Next Episode: 113 – Christian Fundamentals For Investing
Instead of looking at all of the cons of a bear market, Bob and Shawn discuss some of the pros of a falling market and how you might be able to take advantage of it. A bear market isn’t for the fainthearted, and it can cause most people to question if they have made all of the right choices with their money up until this point. However, without a bear market, we wouldn’t have bull markets. There must be a down to an up, an opposite driving force, if you will, that maintains balance.
Click below to listen to Episode 112 – Benefits of a Bear Market
Benefits Of A Bear Market
Instead of looking at all of the cons of a bear market, Bob and Shawn discuss some of the pros of a falling market and how you might be able to take advantage of it. A bear market isn’t for the fainthearted, and it can cause most people to question if they have made all of the right choices with their money up until this point. However, without a bear market, we wouldn’t have bull markets. There must be a down to an up, an opposite driving force, if you will, that maintains balance.
HOSTED BY: Bob Barber, CWS®, CKA®
CO-HOST: Shawn Peters
Mentioned In This Episode
Christian Financial Advisors
.dt-shortcode-soc-icons.soc-icons-6d3d70cdad80c3022dac88b2b035272f a {
margin-right: 4px;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f {
margin-right: 4px;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:last-child {
margin-right: 0;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:before,
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:after {
padding: inherit;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f.dt-icon-border-on:before {
border: solid ;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f.dt-icon-hover-border-on:after {
border: solid ;
}
Bob Barber, CWS®, CKA®
.dt-shortcode-soc-icons.soc-icons-6d3d70cdad80c3022dac88b2b035272f a {
margin-right: 4px;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f {
margin-right: 4px;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:last-child {
margin-right: 0;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:before,
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:after {
padding: inherit;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f.dt-icon-border-on:before {
border: solid ;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f.dt-icon-hover-border-on:after {
border: solid ;
}
Shawn Peters
.dt-shortcode-soc-icons.soc-icons-6d3d70cdad80c3022dac88b2b035272f a {
margin-right: 4px;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f {
margin-right: 4px;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:last-child {
margin-right: 0;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:before,
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f:after {
padding: inherit;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f.dt-icon-border-on:before {
border: solid ;
}
.dt-shortcode-soc-icons a.soc-icons-6d3d70cdad80c3022dac88b2b035272f.dt-icon-hover-border-on:after {
border: solid ;
}
Want to ask a question about your specific situation? Schedule a complimentary 15 minute phone call.
EPISODE TRANSCRIPT
[INTRODUCTION]
Welcome to “Christian Financial Perspectives”, where you’re invited to gain insight, wisdom and knowledge about how Christians integrate their faith, life and finances with a Biblical Worldview. Here’s your host Christian Investment Advisor, Financial Planner, and Coach, Bob Barber.
[EPISODE]
Shawn:
Welcome to our 112th episode or our fourth video episode of the podcast. And today we have a pretty interesting topic. Bob, you want to give us a little bit of an intro for that?
Bob:
Well, before I do, I gotta say that sometimes people will accuse me of like, do you always look at the glass like it’s half full, and yes I do.
Shawn:
I confirm that he does.
Bob:
You gotta look at everything from a positive viewpoint, in my opinion, even when we’re in a bear market. Yep. So what did I do? I made the title of today’s program
Shawn:
“Benefits of a Bear Market”.
Bob:
Who would do that? Well, what kind of person would do that?
Shawn:
A perpetual optimist.
Bob:
Yeah. So there are benefits of a bear market. Believe it or not. And in this bear market series, we did the bear market newsletter special edition. The last few programs that we’ve made have been questions asked in a bear market, how Christians should respond in a bear market. So today, we’re gonna talk about the benefits of a bear market. So instead of looking at things negatively when the markets are way down, look at them positively, cause there’s some great opportunities out there.
Shawn:
Definitely. So start with the definition. A bear market is when securities prices fall 20% or more from recent highs, amid widespread pessimism and negative investor sentiment.
Bob:
We’re there. There’s a lot of stocks that are down 25, 30% some even down 50, 60% right now.
Shawn:
Not necessarily the market as a whole, but like individuals.
Bob:
They’re on sale.
Shawn:
Yeah, they’re on sale. So another interesting fact, not definition. The average bear market can last around a year while the average bull market, when prices are increasing, last over four years.
Bob:
But people remember those years, they do. They remember the months in those years.
Shawn:
And those four years have an interesting effect on people. Four years ends up being about long enough for people to forget that we are gonna have a bear market again.
Bob:
Exactly. Yeah.
Shawn:
And they also forget that the four years of plenty after a bear market.
Bob:
I love my pastor and we’ve been going to Oakwood here in town for years and years. And he always says during the good times, enjoy them, cause there’s gonna be the bad times. And during the bad times, look at the light at the end of the tunnel, cause there’s gonna be the good times.
Shawn:
Ecclesiastes. There’s a time for everything.
Bob:
Our pastor’s kind of the same way. He’s a positive person. And so number one, the number one benefit that I love about bear markets is they really create buying opportunities. Companies are on sale during bear markets and these are buying opportunities that you would normally not have in a bull market.
Shawn:
Yeah. Things are really overvalued. That’s very true. So you should be looking at buying, not selling.
Bob:
Yeah. Adding to your positions. What does the famous Warren Buffet do? He’s always buying when the market’s down.
Shawn:
The only time they talk about him in the news and other media places is when we’ve been in a bear market and all of a sudden you have someone talking about how Warren Buffet’s buying X, Y, Z company stock or whatever. Like what is he doing?
Bob:
He’s buying. He’s buying because everybody else is selling, and they’re not thinking about the long term.
Shawn:
So number two, bear markets create balance.
Bob:
That’s right.
Shawn:
It’s healthy. It keeps values from overextending. If we never had bear markets, then values would never be in check. And a bear market brings balance back into the markets.
Bob:
Think of a seesaw. If you’re on the top part, you’d never get to get off. The seesaw has to come back. Yeah. Things need to balance. Think about a balloon. If you blow too much air into that balloon, what’s that balloon gonna do?
Shawn:
Explode.
Bob:
Explode. It’s gonna pop. Yeah. So it’s good. I’d rather have more bear markets than not because a bear market brings balance back into it. Lets the air back outta that balloon. So you don’t want to have a prolonged bull market because the longer that bull market goes on – and by the way you realize this last bull market has only been two years.
Shawn:
Yeah. We didn’t actually have 4 years.
Bob:
We were in COVID. And then, believe it or not, it was in 18. We had a little bit of a bear market too. So, it’s about every two years and that’s a good thing. You don’t wanna go four or five years or six years. Everything’s gonna get overvalued to the point it’s just ridiculous to buy.
Shawn:
If you think about it too, having it where if we start averaging where we have a shorter bear market and we have a shorter bull market of say around two years, it also creates more opportunities, especially for newer investors or people who they’re not in retirement, but they’re actually a little earlier on in their planning and they’re investing. Because then, you’re not having to worry as much about trying to figure out, like when you need to start buying. Like, well, okay, it’s a bear market. So if you’ve been kind of sitting on the sidelines, now’s the time to start moving in.
Bob:
And even if you are retired and you have a balanced portfolio, you can rebalance it because what will happen in a bear market is the stock portion is gonna go down. That’s going to give you a higher exposure on your fixed income side and you can rebalance and buy more when you’re down. Does that make sense?
Shawn:
Yeah. So when you rebalance, you’re actually selling off the parts of your portfolio that have gone up in overall value and buying more of the positions like the stocks when you’re in the bear market that have gone down in value. And so, your long term net effect is a lot better.
Bob:
Boy, this, this third one is a favorite of mine. Bear markets remove inexperienced day traders. I call ’em day traders and gamblers. They get a really hard lesson in gambling stocks.
Shawn:
Well, that makes me think of something, Bob. How many day traders have you met that are still successful and it’s been more than five years?
Bob:
Well, personally, Shawn, I’ve never met one. Seriously, I’ve never met one.
Shawn:
There may be some out there.
Bob:
They’ll be successful for a couple years and they’ll be successful in a bull market.
Shawn:
It is weird, right? It almost seems like you hear about how successful these day traders are during a bull market. But yet I never really hear about how great they’re doing in a bear market.
Bob:
You know the old 80/20 rule? 20% gonna do well at it. But the day traders, that might be 1%. And what happens is it just pushes them away. It gets them away. They learn their lessons. I saw this back in the early two thousands with the internet bubble.
Shawn:
Again, you could literally throw a dart at a stock and do well.
Bob:
Yeah. Well they had a monkey go to a Rolodex in the nineties, and he just picked stuff out and he did better than some.
Shawn:
I don’t remember that. But I remember you telling me that story once.
Bob:
Yeah. It was funny. But day traders get these hard lessons in these bear markets, and they go away and day traders are not good for the markets. The markets are not about gambling. The markets are supposed to be about investing. But they make it a gambling casino. So, what happens is when you get rid of these day traders and boy, they came on strong in the last couple years because of COVID, and we had these apps, like the Robinhood app where everybody could just go trade all that you wanted to.
Shawn:
Which on paper, it kind of makes sense, the idea of giving more people the ability to be able to invest and manage. But the problem though is the way most of those things are promoted and used. It’s not about sound investing. It’s exactly what you’re talking about. It’s day trading. It’s oh, what’s the newest stock tip to go into and it’s not investing. And yet on our media outlets, they’ll talk about what the investors are doing today. In reality, it’s well, no, they’re not investors. It’s day traders. It’s speculators. It’s not investors. That’s almost unfair to lump investors and people like the day traders into the same group.
Bob:
I heard an advertisement, I guess, six months ago, and it’s kind of going away now. Paper press machine, call me, and I’ll give you this trading platform. The money press machine. I’m like, oh, you’re kidding me. This is sad. So, day traders create a lot more volatility in the market. And as it weeds them out, the volatility will go away.
Shawn:
They lose their capital.
Bob:
They’re always gonna return. I’ve seen it. I’ve seen it over and over. When it’s a bull market, again, market’s been up a couple years, all the day traders start to return again. It’s just like, there’s a time for everything. It just repeats itself and repeats itself.
Shawn:
Well, let’s go on to number four then. Bear markets prune out weak companies. So, this can result in a much healthier market because we have stronger companies that are still around after we’ve gone through that bear market.
Bob:
Exactly. And the price to earning ratios get back down there to where they should be. You shouldn’t be trading at a PE ratio of 200 times earnings.
Shawn:
I don’t remember the exact stats, but I remember it was Rivian, right?
Bob:
You gotta be careful about mentioning particular companies.
Shawn:
I think it’s okay. It’s all over the news at this point. Rivian hadn’t even produced any vehicles yet, and I guess I think it was Ford. I don’t know who it was, but there were multiple companies, like large companies that had started to back them again, before they even produced anything. It’s just basically the idea of what they might produce, and their price earning ratios were crazy.
Bob:
I mean the price earning ratios were a thousand times earnings or something like that.
Shawn:
But that’s an example of one of those things, and now they’re not gonna be the next dominant electric vehicle manufacturer. All of a sudden, all the wind came out of the sail.
Bob:
And we’re not making a recommendation to buy our sell here.
Shawn:
Not, we’re not, but that’s just a more recent example of you get all this hype around something. Like Rivian was the stock tip, and it goes way up and then it cratered.
Bob:
That’s so, so much day trading there, again, and it prunes out those weak companies. Number five is bear markets push away short term investors – or short term traders I call them. I don’t like to call ’em investors because I think of an investor. Investing involves risk, and it’s not for those that can’t handle the short term volatility. Yeah.
Shawn:
Investing is not for months at a time. It’s for years at a time.
Bob:
Many years at a time. Not even one year at a time, but it’s for many years, and if you have an aggressive portfolio that needs to be for a 10 plus year horizon, you have a moderate that needs to be for at least four, five year plus horizon. Conservative even a two year horizon. So, you gotta think of it that way, and there’s all the different investment objectives that you have and each one of those has different time horizons. Okay. Number six.
Shawn:
Number six. Bear markets allow companies to buy back their own stock at bargain basement prices.
Bob:
I’ve been seeing this a lot, Shawn. You’ll see it’s called insider trading. It’s those that are working for the company and they’re coming back and they’re buying their own stock.
Shawn:
Yeah, but legal insider trading, not the insider trading as in they’re using non public information.
Bob:
You can see it on the charge. Yeah.
Shawn:
Yeah. So what is the benefit, I guess, or purpose of that, Bob? We’re buying at these very low prices, relative to where they’re trading.
Bob:
The company can take back more control of its own company. Because sometimes when a company starts to become publicly traded, they lose control of the company. It’s all about just who owns all the traders, stock traders now, or investors versus what the company wants. So, another thing I like too, is during a bear market, it allows companies to buy weaker companies that maybe are in the same business. So, the consolidation takes place and helps them to be even more competitive in the future.
Shawn:
Right. Makes sense.
Bob:
So, it creates synergy and a stronger company, the strong by the weak.
Shawn:
So all that being said, Bob, what would you say are the two main things causing the present bear market we’re in now?
Bob:
Well, that’s a good one because it’s changing quickly.
Shawn:
At the time of this recording
Bob:
And we know inflation has taken a big bite out of it, but we’ve also had news in just the past couple weeks that they way over shot in the large companies, like the Walmarts and the Targets, on their inventory. So, they have more inventory, they have record numbers of inventory now, that really the markets didn’t understand that they had that until a couple weeks ago. And just this morning, inflation numbers came out that they’re lower this last month than they were the month before, but definitely inflation is hurting things in the supply side.
Shawn:
So basically, you kind of have those leading and lagging indicators and we’ve been experiencing inflation from supply side issues that kind of been just hanging around because of the pandemic and when it started. Even though we’re starting to see a lot of those areas that are kind of resolving themselves where we actually have more than enough supply, but it’s kinda one those things where it takes a little while for things to kind of catch up.
Bob:
Things don’t just happen overnight, and COVID lasted a couple years. We’ve gotta work our way through that. The Ukraine Russian war. There’s so many different opinions on this. I don’t know if this thing is gonna turn into like the Vietnam war and just go for years and years or months. I hope it doesn’t, but maybe it could.
Shawn:
It could be resolved quickly or it could just kind of drag on and the thing that’s interesting about that on causing oil prices to go up. Well, it’s not so much because we’re in the United States. It’s not that we don’t have enough oil. It’s not that we’re just selling everything overseas, but it’s just one of those where if you have a major area being affected by that commodity pricing, it will affect the prices in other markets, even if they’re not directly affected because of like a supply chain issue. But then, I think we were just talking about this a couple of days ago, you were talking about all of the pipelines coming back on and the new drilling and all the wells, because you’re talking about private land. Well, there’s no issue with the private land.
Bob:
We live very close to what’s called the Eagle Ford Shell. And for those of you that don’t know, we live in between San Antonio and Austin. That’s where we’re making this. And we’re basically 45 minutes from what’s called the Eagle Ford Shell. It’s a big oil area. I know that today from talking to clients that live in the Eagle Ford Shell, and even talking to some clients that work for the oil companies, there’s not a single piece of equipment that’s even available. Everything is out there drilling
Shawn:
Everything available is being used.
Bob:
So, what happened with oil was that the prices dictated what’s happening today a couple years ago. Because the prices were so low, they turned off the wells, they quit drilling. It wasn’t profitable to drill. Well now with prices back.
Shawn:
And they’re trying to turn those things back on, but again, the problem is it’s not like a light switch when you just flip it on and, “Oh, great. We have more!” It takes awhile again. It’s that leading lagging kind of an indicator. It takes a while for us to get back to where, okay, we’re now producing enough to start to have the prices actually start coming back down.
Bob:
And it’s happened over and over. If you look at history, the oil companies, too much supply and prices go back down. Prices go back down, they turn the wells off or they quit drilling.
Shawn:
Or they end up turning like too many wells off and the prices start going back up again.
Bob:
Yeah, exactly, because then you don’t have enough enough supplies. The artificially low interest rates that we had during COVID, that’s gonna take awhile. I mean, they’re saying they’re gonna continue to raise rates. I think they need to slow down and see what they’ve done so far, how that’s going to affect the future. Higher rates are really starting to hit real estate. I would not go out and buy any real estate right now. Do not. I just wouldn’t do it. I wouldn’t, because…
Shawn:
It’s just math.
Bob:
It’s just math. Well, yeah. We had a whole podcast on that. So real estate is going to reset. Sometimes, people in our area, they’ll say, yeah, but we’re in a bubble here. That can’t happen.
Shawn:
Yeah. It’s different.
Bob:
No, we’re not.
Shawn:
Somehow, we magically have buyers coming from places that I guess aren’t affected by any of this.
Bob:
Exactly. Yeah. So we’re not an island in our area. By the way Austin, San Antonio area is one of the hottest growth places in the United States, but it’s because of people coming from other areas, and we’ve become so expensive now that we’re just the size they are.
Shawn:
I’ve never seen the stats where it was like Chicago and Austin being compared. And obviously, Austin’s a pretty popular place when people are moving to Texas. When Chicago and Austin are getting to a price equilibrium, where’s the incentive to move? You don’t have the same incentive that you had. Like I remember a number of years ago when you had a lot of people that would come from places like California where they could buy two houses here for the same price as their’s after the price of their home already dropped. Well, when all of a sudden that incentive goes away because there’s not as much of a difference, well then you’re not gonna have so many people moving, which means you won’t have as many buyers.
Bob:
Well, hopefully this has helped you today as we’ve talked about the benefits of a bear market. Take advantage. Take advantage of these low prices right now.
Shawn:
Yeah. Check out our episodes that are available on audio, video. You can go to our, our website, christianfinancialpodcast.com. If you want to find us online, you look for Christian Financial Perspectives. We’re also available to call or text at (830) 609-6986. Thank you. And God bless.
[CONCLUSION]
That’s all for now.
We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986.
[DISCLOSURES]
Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors, also known as Christian Financial Advisors, a registered investment advisor. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the host, Bob Barber and his guests. Bob does not provide tax advice and encourages you to seek guidance from a tax professional. While Christian Investment Advisors believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.