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Can You Spot the Bear Market

Can You Spot the Bear Market

Is "Where's Waldo?" actually a lesson in behavioral finance?

We all remember picking up a “Where’s Waldo?” book and spending what seemed to be an eternity sleuthing out that “stealthy” man wearing a red and white striped shirt with matching pom hat and glasses. He was hard to find, and when you tracked him down it felt so gratifying! But once you found him, the book became useless…until you flipped the page and had to begin the hunt anew for the clandestine man in the obnoxious shirt and hat. 

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The same can be said for “market downturns” or “corrections”. Since the Great Depression, there have been 11 Bear Market periods lasting on average 1.3 years. These Bear Markets are triggered for various reasons and/or events, and the trigger points always seem glowingly obvious after the fact…just as it’s always so easy to find Waldo after you’ve already discovered his surreptitious location. Yet as we all know, every year there is always something that sends some investors into a tizzy – so what is a trigger event to begin the next Recession or Bear Market and what is just a blip on the radar? Which cartoon wearing a silly pom hat is actually that wily Waldo and which is the bait to throw you off?

While we must always state that past performance is no guarantee of future results, we can say that historically the markets ALWAYS go down at some point, and each time they have bounced back. Yes, we are in a long-running Bull Market that has lasted a decade, and yes, bull markets don’t last forever…At some point, the markets will turn downwards and usher in the next recession or bear market, but people will continue to buy “Where’s Waldo?” books for their kids and life will go on. One thing is certain, no one can predict when to get in or out of the market. The only “trick” is to stick with a disciplined Investment Strategy and have the patience and courage to continually FIGHT THE NARRATIVE.

Raymond James is not affiliated with First Trust Portfolios, LP.