Survival Tips

I always love those TV programs that provide you with “The 10 Things you need to know to Survive in the Himalayas (or desert island or wherever there is no cable TV)”. Maybe it’s because that situation seems so awful for a bumbling non-outdoorswoman like me, but you never know when this information will be needed. That said, I was thinking that with the end of the second quarter passing, many investors are in need of some survival tips of their own.

Let’s get down to the numbers: the Dow Jones Industrial Average ended the day at 11,350.01, down 10.2% for the month of June, the worst June performance since the Great Depression – 1930, to be exact. For the second quarter, the Dow dropped 7.4%, its third-straight quarterly slide, the longest stretch of declines since 1978. Additionally, the Dow just about met the definition of a “Bear Market,” down 19.8% from its closing high of 14,165, reached on October 9, 2007.

The two other major US indexes fared somewhat better in the second quarter than the Dow—the S&P 500 closed at 1280, down 8.6% for the month and 3.2% in the quarter and down 18.1% from the October 10, 2007 closing high of 1562. The NASDAQ closed at 2292, a monthly loss of 9.1%, but a quarterly increase of 0.6%. The NASDAQ is 19.8% below the closing print of 2859 on October 31, 2007.

With all due respect to the Fed, earnings, financial companies, dollar devaluation or any other potential catalyst for the downside movement, the major culprit was oil. Yesterday, the August crude oil contract closed at $140 a barrel on the New York Mercantile Exchange, 9.9% higher for the month of June, 37.8% for the second quarter and up a staggering 45.9% higher year-to-date, after ending last year at $95.98.

Here are some things to consider before you get too depressed: According to Ned Davis Research, since 1960, the average bear market has lasted about 14 months and has taken stocks down about 31% before they hit bottom. We are already 8 months into this mess, so we’re statistically closer to the end than the beginning. Additionally, stocks typically snap back from a bear market pretty quickly. According to S&P's chief equities strategist, since 1945, it took 12 months for stocks to regain lost ground. That said, here are five quick reminders for surviving a bear market:

1. Part of being an investor is going through these nasty times. Without the downs, there can be no ups!
2. Assuming that you have a diversified portfolio, you are likely not suffering nearly as much as the overall markets.
3. Since WW II-2007, the S&P 500-stock index has risen by an annual average of 9.1% and there were lots of bad times included in that time horizon.
4. If you continue to contribute to your retirement plan, you are finally buying low!
5. You were smart enough to keep an emergency reserve fund set aside that is not invested in the stock market.