How to invest in a bear market, two

September 25 2008 by Ellen Roseman

When I started this conversation in late July, I didn’t expect things would go off the rails so quickly. Now the United States is trying to push through a $700 billion (U.S.) bailout of financial institutions that may not even stem the tide of bad loans and bad paper.

Stay the course. Think long term. That’s the main message you get from your financial advisers if they bother to call or write during this crisis. Many don’t, according to consultant Dan Richards.

I have a financial adviser for my RRSPs, who called me twice last week. She said my portfolio looked good. She did agree to change a couple of my riskier holdings, at my suggestion.

I also have a self-directed account, where I also made a few changes. I realized that I should be taking some of my gains off the table. So I sold half of the stocks that were up substantially.

It’s hard to stand by and do nothing when markets are so uncertain. Working in the media, getting all the news and rumours, I find it hard not to worry when this crisis seems worse than others that have preceded it. But with the cash in my account, I’m also buying a few stocks that seem depressed.

Last week, I wrote about Ted Rechtshaffen, a certified financial planner who has borrowed more than he needs for a new house and is buying stocks with leverage. He has an update for me below.

Now that things are bad, are you staying the course? Or are you wavering? Please keep the comments coming.


  1. Jerry Hung

    Sep 25 2008

    Cash is king means so many things in this environment.

    Our portfolio is down (whose isn’t?) but I look at this in a positive way – if we can survive this [the worst recession in recent decades], we will come out ahead and be ready for the next few decades.

    Things learned include:

    –Don’t invest too much in tech/financial

    –I should’ve sold some profits when we have them (not be greedy), including last Friday with +800 pts

    –Berkshire rocks, if one can afford the shares, ireally less volatile and a stable and safe choice

    –Instead of mutual funds, invest in TD e-funds index funds to get low MERs and no commission (vs. ETF).

    It is hard to observe the volatile stock market now, but if you can focus elsewhere (work, personal life, family), do that, and in a couple years hopefully all is good.

  2. Charles in Vancouver

    Sep 25 2008

    RF, currency-hedged funds have inherently more tracking error because they invest in derivatives to adjust the portfolio’s performance to match currency movements. These derivatives are not perfect and sometimes they slip.

    What’s complicated about the International currency-neutral fund is that each country’s contributions are hedged to that currency. So the Japanese part is hedged to the yen, the Eurozone part to the Euro, the British part to the pound, etc.

    But if you track the same index (MSCI EAFE) in US dollars, all sources will report an unhedged value in US dollars. It is quite possible that the EAFE will close down one day in US$ terms, but up in currency-hedged terms.

  3. Jaz

    Sep 25 2008

    Amid the panic and rumours and bad news being sold in the media, what shocks me the most is the number of advisors who don’t call their clients.

    At 27 and only a few years into my career after grad school, I don’t have much in investable assets. That didn’t stop my advisor from calling me last week to check in.

    In contrast, my boyfriend, seven years my senior and an executive with considerable assets available to invest, did not receive a call from his advisor and his two voicemails were ignored. He bought shares through his online self-directed account and on Monday he moved all of his assets to my advisor.

    One advisor took the time to contact a small client and ended up bringing in a good amount of money. The other advisor probably isn’t hurting for this, but he will lose referrals tenfold from my boyfriend.

    Of course, these advisors are busy, but a quick phone call can go a long way to earn loyalty and stop the panic.

  4. brad

    Sep 26 2008

    Because I’m investing for the long term (I’m still more than 15 years from retirement and don’t have any near-term investment goals), I don’t care a whit about losses in my portfolio’s value today.

    It’s not like my stock-based investments are savings accounts where you have to wait many years for interest to build back up and recoup your losses.

    I still own all my shares. What they are worth today doesn’t matter. It’s what they’re worth in 20 years or so when I need the money that counts. As that day gets closer, I’ll be paying a lot more attention to the ups and downs of the market, but for now I’m staying the course.

  5. WKG

    Sep 26 2008

    This comment does not really pertain to investing in a bear market. It’s more a general comment about stock markets.

    I am 44 years old and my stock portfolio is off well over 1 million dollars since May. I have sold nothing at this point, but have resolved to sell some stock holdings and put this money into investments that are not stock or money market related when a recovery happens (assuming it happens in my lifetime).

    I have invested in the markets seriously for about 15 years and I simply cannot get my mind around the fact that the bulk of that time has been spent waiting for the stock market to recover.

    I also cannot accept the fact that seemingly profitable and reputable American companies can implode on themselves and become worthless in a very small time frame, with no consequences or implications for the greedy fools that were paid millions to run them into the ground.

    Having said this, the bulk of my worth has come from the markets. I have never experienced a period when I get a nice steady return from the market. I have always been really up or really down, and there is no in between. The greatest successes that I have had have been investing in Canadian companies, mostly oil and gas.

    The money that I have put onto the market in the last two years is mostly commodity related. The reason? I believe that as the USA prints more and more money, currencies all over the world are slowly going to begin to lose their relevance.

    Currency is based on nothing other than how fast it can be printed.

  6. RF

    Sep 28 2008

    Charles in Vancouver Sep 25 2008

    I understand from your comments how International Index Currency Neutral funds operate, and that there can be some tracking error. It’s possible the EAFE markets close down one day, but the funds themselves can actually be priced up… and vice versa.

    What I don’t understand is how the very similar index funds previously mentioned, if all operating on the same principle you mention, and using the same MSCI EAFE benchmark and tracking the very same oversea indices for the very same day [when those markets closed lower]… yet one fund closes up (+ 4.0%) and the other funds are down (- 1.0%) from their previous day’s posted closing unit values?

    I’m confused. Are the very same funds not valuing their units in the same way ? If so, it makes comparing their returns difficult over the short term (say daily, weekly or even for the month)…

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