facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search brokercheck brokercheck
%POST_TITLE% Thumbnail

Don't Fear The Bear - Part II

ASK BART: Should I Fear a Bear Market? (Part II)

The following is Part II of a new series dedicated to answering real client questions. The questions themselves, along with names and details, have been altered to protect the innocent.
Part I is located here.
READING TIME: 35 minutes


If you know me and my unique writing style, you'll know that I typically prefer to start off with any bad news to get it out front and center as soon as possible, so we can deal with it. Of course, the concepts of both good and bad are largely subjective and there is always opportunity behind all misfortune, and some loss in every victory.

“There is no good or bad without us, there is only perception. There is the event itself and the story we tell ourselves about what it means.”

― Ryan Holiday, The Obstacle Is the Way

In Part I of this series, I made a salacious claim that my job is not necessarily to shield our clients from market corrections. I was being somewhat serious, but also slightly facetious. The truth is that we take market drops very seriously at Stevens Wealth Management and we work extremely hard to protect our clients from them when they inevitably occur. In fact, protecting accounts on the downside may be our core investment strategy, and most of our models are tracking better (in some cases, much better) than almost every other popular index in 2022, including the following:

  • S&P 500 - 500 largest publicly held companies incorporated in America
  • Nasdaq 100 - 100 largest publicly held technology companies incorporated in America
  • Russell 3000 -  3000 largest publicly held companies incorporated in America
  • EURO STOXX 50 - (you guessed it...) 50 largest publicly held companies in the Euro Zone
  • iShares Core US Aggregate Bond (AGG) - Fund that closely tracks the average of all corporate bonds in America (the S&P 500 of the US domestic bond market)

As you can see above, even within the 11 sectors that make up the S&P 500 there's been quite a lot of red ink spilled in 2022. There really has been (almost) nowhere to hide.

I show the above charts for three reasons:

  • To highlight that in general, investment management (or lack thereof) has not been the primary culprit of client losses this year, nor are we an underperforming outlier that simply misjudged the market. Not that I would shy away from acknowledging if that were the case, but this is important....
  • To reinforce the reality that few areas of the economy and markets have been immune to the market drop thus far, and some quite a bit. However... 
  • While there are no guarantees, such a broad-based sell-off may not necessarily be as bad as it appears, because this may instead speak to a general mood in the market, which in this case is depressed. And as I argued in Part I (and most clients are already quite familiar with), there is a lot of ugly news out there to make a case that this economy is going through some turbulence. However, many long-time investors and clients have been here before and are also aware that Bear (down) markets usually present some of the most fertile ground for future growth and profit opportunity.

But I digress back to my acknowledgement that we cannot fully protect our clients from market downturns anymore than I can forestall winter. What we can do is build custom, high-quality and well-balanced portfolios composed of holdings that are themselves well-managed, long-tenured, tax-efficient and low cost. We can closely monitor the financial markets, identify underlying trends and red flags, and react quickly and nimbly when they appear. But we can't predict the future, and have never endeavored to try. We've also never held ourselves out as divine prophets able to foresee market movements nor financial savants with extraordinary insight beyond that of the average professional investor. 

Instead, we intuitively understand and openly profess that market behavior is random. It's controlled by over a billion participants, acting mostly autonomously, sometimes insane and always unpredictably. It's also their prerogative to react emotionally and sometimes even against their best interests. As such, the stock market is and always has been an unknowable phenomenon. Furthermore, large swaths of financial markets jumped the tracks of logic and reason sometime around the turn of the 20th century and that divergence from fundamentals has only accelerated since the Great Financial Recession. In the aftermath, today's markets have become inconceivably complex, manipulated in certain aspects and corners of finance, and frankly stacked against the retail (i.e. DIY) investor. That's one reason that hedge funds- formerly the master of the (investment) universe, are going out of business in droves.

This does not mean that profits cannot still be achieved and investors can't still participate - and even thrive- within the greatest wealth-building machine in human history. Far from it. We simply posit that good investors must develop a consistent, reliable and effective tool kit to interpret and manage this new and quirky investing landscape. More importantly, the modern investor must think in unconventional and challenging ways in order to play the game differently than they have in the past. New players, rules and strategies require new methods, tools and mindsets. Those clinging to outdated models will get left behind. 

In a free-market capitalistic system with imperfect players leveraging imperfect information, markets can never move in linear fashion and will therefore experience frequent and sometimes extreme bouts of excess exuberance followed by fantastic corrections... there is simply no way to avoid it. The more extreme the bubble, the more extreme the eventual deflation. But history has shown that free markets will usually and eventually revert to a long-term "mean" that persists regardless of the pendulum swings of culture, politics and economics. Most investors are at least vaguely familiar with the iconic stock market graph that appears somewhat calm and consistent, exponentially rising when zoomed out but displaying increasingly sharp and jagged spikes both up and down when zoomed in, as buyers and sellers do their best each day to establish an equilibrium with stocks within a system that is equal parts chaotic and unpredictable. And since we've established that no one truly knows the future, we must play within the rules of the game with the information available to us. Unfortunately, rules can change quickly, leaving investors to attempt synergizing both current inputs as well as historical patterns in order to develop a strategy that leverages small mini-wagers based on mini-predictions about anticipated future market movements, which are themselves based on estimations of where we are believe the economy exists within a much greater market cycle. 

At Stevens Wealth, we develop portfolios with varying levels of risk-return for different investor profiles, with the full knowledge and comfort of knowing that each investor resides somewhere on a spectrum of risk and that position is subject to change based on the circumstances. Because there is no 'free lunch' in modern finance, investors must accept an appropriate level of risk for their desired return expectations. And so when the markets experience their peaks and valleys, we don't freak out, but instead spring into action to employ knowledge and experience towards navigating client portfolios in a way that has proven effective in the past and based on what we believe to still be relevant dynamics. There is significant complication built into the system and our processes within it, but all roads ultimately lead back to a painfully basic strategy of 'buy low / sell high.' 

It's within this context that we will take a closer look at our current economic and market environment and attempt to convince our clients that the current volatility we're experiencing is not only expected but normal and healthy, and even beneficial for the long-term viability of the system itself. It's a process of creative destruction, much like a forest fire clears out dead brush in order to rebuild a new and stronger forest in its place. As such, we consider it our responsibility to demonstrate to the best of our ability that some market losses should be not feared but embraced. When markets drop, it's a collective acknowledgment by participants that the values of the individual companies no longer accurately reflect the conditions in which they operate, and a system that is both self-correcting and potentially advantageous to investors as a potential gift. 

Regular pendulum swing in valuations often allows investors the opportunity to buy investments cheaper than they could before. And yet, these periods are often rife with investors who suddenly and completely forget market fundamentals, abandon long-held strategies, and adopt new ones based on flawed, data or (worse) their own emotions. This can serve to subvert their own long-term financial well-being. They become the human chum on the front lines of a merciless capitalistic system that redistributes the resources of certain unfortunate victims in order to enrich those who have not forgotten foundational market principles, maintain their exiting strategies (and their head!) while remaining true to themselves and their financial objectives.

There's a good chance you've probably never thought about the market or yourself in this way before. 


I'm rarely one to pull punches, and fully admit that the outlook for the global economy and markets looks pretty foreboding at the moment. Some uncouth louse might even say it sucks. Of course, it's legally-required of me in the "financial advisor handbook" that they hand you on Day 1 of stock broker school to always point out that the gloomiest market conditions have historically presented the most lucrative investment opportunities for investors willing to risk their capital, since successful investors in any market tend to "make money on the buy, not the sell." It's indeed quite difficult to "sell high" if you don't first "buy low." 

The first challenge with the "buy low / sell high" maxim is that buying low rarely feels good at the time. It's not supposed to feel good, it's supposed to feel really foolish to zig when everyone else is zagging. It's supposed to hurt, and It's supposed to feel reckless, inspiring one to ask, "what the heck am I doing???" In addition, the larger the group of participants in any market, and the higher the emotion and stakes, the easier it becomes to conform to the collective, with an increased propensity to make poor (and sometimes catastrophic) decisions in the heat of the moment... when all fish are swimming in the same direction.

If a product or service you want to buy is selling at a steep discount to a past valuation- and assuming you are not an investing genius like Warren Buffett (or given free taxpayer money like Blackrock)- that means virtually every other investor agrees that it deserves to be revalued at that price or lower. If they did not, then the product or service wouldn't be selling at a discount in the first place, because sellers (who always want to sell for the highest price possible) could by definition obtain that higher price. That's probably obvious, but stay with me..

In the stock market, an overwhelming majority of participants- buyers and sellers- have to almost universally agree that a company is worth less today than it was previously in order for its stock to drop in price. In that light, perhaps it's understandable that we humans are generally quite poor investors, because in order to make outsized profits in the stock market we usually have to make a purchase that is at that moment judged to be wrong and/or even stupid by literally everyone else in the same market. To move against such conflicting pressure is very, very hard to do. It usually requires us to either be prescient, brilliant (or dumb), devout, lucky or crazy

Crazy like a fox.

In my experience, an investor needs to posses at least one of the above adjectives to outperform the average. I know which one I am... but which one are you? 

The second main challenge is multifaceted as well:

  • To first recognize an environment as "low" (or at least undervalued)
  • To then identify where the most lucrative sectors and instruments reside 
  • To muster a combination of faith, delusion and/or courage to make a financial committment

I understand, that all seems like a lot of work. But an argument could be made that just believing there will even be a future at all may be all that's truly necessary to achieve reasonable long-term investing success, since as far back as I can remember the future has almost always been better, more profitable and prosperous than the past. Granted, I was born during the Carter administration (the last time society entertained truly ridiculous ideas about how free markets should work) so the bar was already quite low back then.

Looking back on that era, perhaps the only direction for our economy to go was up from there. With rare (and some notable) exception, humans and their groups rarely devolve (unless you're the Dallas Cowboys) and that usually applies for cultures, countries and economies. While there's always existed brief (and some not-so-brief) periods of economic disruption (i.e. wars, plagues and ecological disasters), hopefully we can agree that in our lifetime periods of stagnation or recession have been brief and relatively painless in retrospect.

Admittedly, if your financial goals are short-term (< 3-5 years) markets like this can be quite problematic, but I don't have a ton of clients who need or plan to take all (or even a majority) of their assets in cash before the next Presidential election. Every correction cycle, a few people convince themselves that they might, but in my experience most of those folks are not thinking linearly, rationally nor coherently. If you do believe your objectives exist on a timeline this short, please reach out to me so we can re-evaluate your situation and portfolio.

It's useful to point out that if we were to ever enter a period where humanity failed to progress, then I'm willing to bet that the capital you did not invest in the financial markets would likely be no more valuable than the investments you did not buy. You would have to believe that in this future dystopia, your fiat currency (i.e. cash) could survive within a country and economy where all the major sectors (banking, technology and health care) are insolvent. To me, that feels a bit naïve. If we're presented with an economic doomsday scenario where you're carrying around cash, gold or Bitcoin then it's reasonable to predict that the banks, grocery stores and department stores will be closed as well, there will be nothing to buy, no one to ring you up, nowhere to store your treasure, and few practical methods of travel. (Unless you have a horse or a hoverboard, which is another conversation altogether that I would love to have.) If you're just walking around with your food, shelter and gold on your back, you'll need to account for another bag of firearms. While I have a very large and diverse clientele, I can't imagine m/any of them in a Mad Max outfit, and honestly it just makes me laugh to even think about.

If you can maintain your bearings as well as even a rudimentary understanding of how our current financial infrastructure works- and how highly imbedded and interconnected it is with all other aspects of society, and our society with others- then I think you can quickly arrive at the realization that we're all in this thing pretty deep already, we're all in this together and simple logic would encourage you to stay committed to (or even double down on) our current system, one that has survived far worse economic environments than this. It's like planning to travel to Mars if the Earth becomes uninhabitable or moving to Costa Rica if things get really bad in the inner cities, the whole exercise just seems to breaks down the further you articulate this fantasy. I find epiphanies like these to be a beneficial mindset for the successful modern investor in doubt over whether our country, society and way of life can survive whatever combination of risk factors our environment throws at us. So if you find the above scenarios as much a waste of time as I do, then I think you will eventually end up focused on the long-term overall-positive future trajectory of the stock market and just learn to embrace the current suck in the interim while you wait for the inevitable bull market rally.  

In my many conversations over the past twenty years, investors (and humans) tend to look back with the most regret on those situations when they did not take the risk to buy low, far more than those opportunities when they did. And I bet you do, too. Sometimes you just gotta' shoot your shot, as the kids say.


The market is and always has been irrational, illogical and bipolar, because so are its participants. And it's getting worse. The last time I checked there were several billion investors actively trading at any one time, all trying to evaluate the value of some pieces of paper with claims to a fraction of profits from some publicly-traded corporation, stakes that fluctuate from minute-to-minute and person-to-person based on the random whims (and the madness) of crowds. It's really quite an amazing system when you reflect on it. Right now, residential housing in central Texas is selling for upwards of about 30% over asking price, which is the indication of a severe price dislocation (that's not the word I normally use!). But somehow you and I can come to complete agreement in this instant on the price of any one of tens of thousands of individual stocks and all down to the fraction of a penny. Rarely do we even consider the immense complexity and coordination required to achieve that.  

The unpredictable nature of our modern life and country/ culture/ politics/ economy/ markets has clearly left most of us with feelings of stress, discomfort and a loss of control. It can be disarming and confounding to the smart, left-brainers that I serve. Uber-practical folks like to believe that everyone sees the world the same way that they do, but alas the truth is that from my (unscientific) observations, I estimate only about a third of the population seems to engage with the world in what I would consider a logical and reasoned demeanor. At least another third (depending on the county!!) seem to react to the world primarily based on emotion (think of our US Senator's behavior during the last four Supreme Court nomination interrogations). The remaining third seem not to react at all, zombies seemingly numb to the world wandering aimlessly in life and bouncing from one outrage to another like the scene of a homeless encampment on some street in downtown Austin. 

When I witness the behavior of some investors (and even clients), I wonder whether we as humans are even really designed to participate in systems like the stock market, that perhaps we lack the genetic predisposition to understand and react to cyclical systems and risk management. Transferring our unused excess energy and resources (stored in the form of US dollar bills) into investment instruments in the hope of future appreciation is a relatively new phenomenon in the modern world. A few hundred years ago, I could only trade my cow for your chickens, so the transactions were mostly tangible and brief. As a result, when our domestic economic situation becomes as dysfunctional as the one we currently inhabit, we can fall vulnerable to ancient programming involving a short-term outlook that costs us accurate perspective of our place and time in the middle of longer-term cyclical patterns that have all played out millions of times in very similar patterns across our entire lives and even multiple generations. 

If all investors could appreciate the long-term mentality afforded to us by currency and investments, I think we could increase our chances of ignoring the immediate crisis of the day for the long-term certainly of tomorrow. In essence, we seem prone to lose sight of the forest (the gradually increasing value of everything in our world) for the trees (crisis, emergencies and unexpected surprises.)  We also think we can jump out of the market and then jump back in with perfect timing- which requires one to guess right not once but twice- and represents hilarious hubris to anyone who has been invested through more than even one correction in their life.  


It's not uncommon for me to make personal appeals to my clients to adopt (or at least consider) a strategy similar to my own of doing the opposite of what appears ‘obvious’ with the markets and their portfolios. Spoiler Alert: there are days that I go into the office and literally commit to doing the opposite of what I woke up thinking would be the most logical and obvious course of action. No, I'm not talking about walking around barefoot, playing Candy Crush on my smartphone and shot-gunning Red Bulls all morning. I'm referring to some specific investing strategies that act in direct contradiction to what a logical person would do. For instance, when the market goes down, I put money in and keep putting it in every day it drops. When the market is selling at a premium and everyone is happy to be making money, I wonder what needs to be trimmed to avoid getting too far outside my range of risk tolerance. The worse the news, the more aggressive I get; the most stable the market, the less interested I am in adding to it. Of course, there are limits to this approach, because good markets can be good for a very long time and bad markets feel very scary usually for good reason. But I am convinced that if I simply did the opposite of my initial instincts each and every day, I'd be retired on a beach somewhere and not engaged in self-therapy through graphic financial blog posts like this.    

The point is that moving against what your brain tells you is in your best interest has a curious history of of effectiveness  for both me and my clients over the years. This and other similar contrarian strategies rarely change and continue to follow reliable and time-tested principles, because in all my years in finance I've yet to meet a single person who had more and better information about the markets and the future than the collective intelligence of billions of investors and consumers in the free market itself (translation: your hunch is probably not premonition and it's already priced into the market, trust me. You are not Nostradamus, nor are you the only person to receive that email newsletter about the impending breakout in gold, the Iraqi dinar, dogecoin, real estate IRAs, cannabis, SPACs, etc.) 

In addition to leveraging unorthodox trading strategies, successful investors must further condition themselves to think differently from the crowd in order to outperform in the financial markets. But it's hard to think differently when you're consuming the same legacy-media noise as everyone else, content that is carefully cultivated and widely distributed specifically to sabotage content consumers. I've said it before and I will say it again: one's investing success will be in indirect proportion to their television consumption habits, specifically in regards to legacy media. I'm not being hyperbolic, I challenge anyone to provide me an example of specific advice or actionable data that they've consumed on the news that made them a smarter and more successful investor. And If you reference CNBC, I'm throwing you out of my office! 

By now, everyone knows how I feel about our friends in the media. And I suspect the time has come that most viewers see the code in the matrix and are tired of being manipulated and having their intelligence insulted. CNN+ just collapsed last week, which was a real tragedy. I think it had less viewers than Paw Petrol. John Stewart was also cancelled, which is only a surprise because no one knew he was on television. Awards shows have become unwatchable and are in freefall. Late night talk-show hosts and comedy specials are so unfunny they're painful, and if you don't believe me then watch Saturday Night Live. Disney is probably next up to feel the pain, ESPN is on life support and the day of reckoning hangs over many channels and shows on cable television. The end of the an era for entertainment and news is upon us, people are voting with their downloads and podcasts with $100 budgets are routinely overtaking viewership from the major networks spending hundreds of millions of dollars. More people trust Joe Rogan and Jordan Peterson than the combined staffs of Fox and CNN. And yet I still know people paying for cable... in 2022... which is remarkable. There are few journalists left anymore, only activists and propagandists with a specific agenda. And I can guarantee you they are not there to help you. People are even fleeing from the currently established epicenter of knowledge, Google, now that we realize that searches are free because you are the product. Your online activity is now the most valuable thing about you, because talking heads propagandizing to you about who you should be outraged at today wasn't profitable enough.

The only reason to watch basic cable anymore is to learn what not to do, and act in opposition to what you see and hear. You will be a more successful investor if you assume everything you're being told is some version of a lie. Try it for a week, I'm not kidding. There's entire websites dedicated to trading against Jim Cramer's hot stock tips, and yet this clown still has a show. Somewhere, Jerry Springer is thinking, "Really? This buffoon?"

It may sound surprising, but in addition to opposite-day trading strategies and my clinical anti-analysis of financial new outlet advice, I've also incorporate an extensive toolbox of mental exercises each day to survive and thrive in my role as a financial steward. One high-level mantra I frequently employ is to (gasp!) "be greedy when others are fearful and fearful when others are greedy." Because historically that has proven to be a very profitable bet. That is, after 1.) betting against Jim Cramer and 2.) mimicking Nancy Pelosi's husband's investment trades, that has to be a strong #3. Here are a few more that I came up with over lunch today:

  • Overvalued sector reverting to historical averages? Time to buy.
  • Geopolitical conflict? Time to buy.
  • Company recalling products that occasionally explode into flames? Time to buy.
  • Transfer of political leadership to someone you despise? Time to buy.
  • Crushing regulations that threaten to destroy entire industries to save the planet? Time to buy.
  • Federal Reserve driving the economy off a cliff? Time to buy.
  • Really bad seasonal cold? Time to buy.
  • Summer? Time to buy.
  • Asteroid? Time to buy.
  • Threat of nuclear Armageddon? Time to buy.
  • Dogs and cats living together? Time to buy.

Do you see a pattern? I've read some fancy books, and what I've discovered is that in American capitalism, it's almost always time to buy. You just need to pick a quality investment for a quality reason (hint: that you can articulate). And even just one of those two conditions will probably work out better than sitting in cash at the bank.

If the above doesn't convince you, then hopefully this will...

And if not, then I got nuthin'...

It sounds easy, but many humans seem to be masters at sabotaging their own success. I see it everyday. Sometimes we can't get out of our own way. In my experience and for most people, our initial instincts about most things finance and financial markets are usually wrong. Or at least poorly informed or flawed. It's almost like a self-protection mechanism built into the brains exists to prioritize short-term safety at the expense of long-term potential for big success. Unless you're currently reading this blog from a beach on your own private island, your intuition has probably failed you once or twice in your life. Perhaps you thought, "No, that's too risky. I have a family to support.." or "If I tried this and it goes bad, I'll never recover.." "The market is down 15%, which means it's surely going lower. If I buy in now, [insert in-law] will laugh at me and never let me forget it."  

Perhaps events you thought were certain to happen never did, or what you believed about a particular situation or person or group of people proved to be inaccurate. Here's some real-world examples that I've witnessed from clients (against my advice, of course!)

  • Flying to NYC to buy $50K in gold bars (transported in carry on luggage through security, which DID NOT go as planned!)
  • Selling a primary residence to build an underground shelter. 
  • Liquidating an IRA at age 50 to hoard booze because, "it will be more valuable than cash if Obama gets elected."
  • Liquidating the IRA of a spouse going into assisted living to give to a daughter to hide it from Medicare. Also did not go well. 

These are all true stories. Two of which ultimately resulted in divorce. Which I never saw coming.

As hard as it may be for my clients to believe, even I've been victim to some flawed or erroneous perceptions in my life (believe it!) For instance, I distinctly remember seeing people driving around in new cars with paper license plates after COVID first broke out in spring 2020, and thinking, "Wow, buying a new car in this environment? LOL, what a bunch of morons? They'll be giving those cars away in a year!"

It's three years later, and I'm still waiting for a car apocalypse that never came. At least not in the way I had anticipated; no one is giving away any vehicle these days. I only wish now that I had gone out and bought an entire fleet of vehicles back then, I'd have been hood-rich. Even today, I observe people paying full price for cheaply-made RVs and my first instinct is sadness that they're gonna be using them a couple of times a year in between repair visits before begging someone to take it off their hands. The only difference is that my return response (to myself) might be, "Would it be possible that those fifth wheels will be selling for a premium once President Fauci approves them for use in his FEMA camps?"

I kid, I kid!... Cuz' no way Fauci takes a 50% pay cut and surrenders all that television exposure he craves to be demoted to POTUS.

But seriously, if you're currently wondering when you should be getting out of this market, may I suggest that you instead try a little experiment where you flex your brain muscles and humor me with a thought like, "when should we be getting back in?" Or "what would I have to observe to believe we're nearing a market bottom?" Or "will this company or industry exist in three years?" So far, only a handful of kooks have called my office asking some version of that question. Most of them are the same weirdos who bucked the consensus and crushed the market by going all in in 2009 and 2020. 

I suspect Wall Street traders may also be starting to pick through the carnage of the last few weeks, looking for deals. Because never, ever forget that if you're selling your shares, then by definition someone else must be on the other end of that trade wanting to buy those shares at that price. You'll wonder if they dress as sharp as me, with similar personality looks and charm, and have more information than either of us combined, and it will haunt you. Personally, I'll be damned if I give away my shares to some trading desk intern at an investment bank with insider information from his old college roommate working at the US Treasury.

To be a successful investor when things appear as ugly as they are now, it might also be beneficial to either a.) medicate yourself, b.) go outside, live your best life and ignore your portfolio statements for what may seem like an excruciatingly long period of time (i.e. months or quarters), and/or b.) train your brain to automatically subvert your intuition. (I vote for all three.) Because your intuition is almost always just group think in disguise, masquerading as clairvoyance. And this is coming from a guy who used to think he could control people on my TV with just my thoughts. I have done some more ultra-scientific internal polling on this topic as well and thus far, no client I know has been able to channel the investing gods nor the future. Not even with a Ouija Board.

I have some pretty reliable long-held suspicions that the human brain has never adapted to timing financial instruments in the last few hundred years. That kind of enlightenment (and altered neurology) takes many generations to alter brain chemistry and we've only been swapping paper shares of companies since the Dutch East India Company's in 1602. That's really not that long ago. So if you can't rely on evolutionary psychology, then you're instead left with falling back on boring old habits (or delegate to someone who has!)


By now, most of my clients are fairly used to me overwhelming them with data (who, me?!?!), encouraging them to ‘stay the course’ with their investments through most market environments and even consider adding to positions if and when it seems least 'obvious.' As we discussed earlier, that's usually when the big gains are hatched. But sadly, many people feel a compulsion from somewhere deep inside them to do something... anything...to stop the pain of a falling market, voluntarily and purposely subjecting themselves to acute and frequent daily pain (and some poor decisions) via their smartphone. (Or they 'encourage' me to do something for them!) This is called action bias

If you have ever struggled with investing, it's very likely come as the direct result of- or at least heavily influenced by- your biases, a collection of internal influences that are hard to explain, identify and work around. They can cause a tremendous adverse impact on our ability to make rational decisions based on objective facts and evidence, and achieve investing success. In addition to action, here are a few others:

  • If you made mistakes in the stock market, it may be because you've become convinced- by yourself or others- that current events will not only continue but possibly even worsen. This bias triggers for times both good and bad, but the latter can be especially destructive and that's referred to as recency bias.
  • In what I believe is arguably one of the biggest problems not just in the market but in greater society, some investors harbor a comfortable delusion about how they think the world really works. They then construct a supporting narrative and then search for (and usually find) or interpret new data that only serves to reinforce their beliefs and what the future holds. This is called confirmation bias. 
  • Despite having no formal training and/or a less than perfect investing history, investors can often overestimate their own ability to understand, foresee, control and react to the market. This is called overestimation bias.
  • If you're human, you may suffer more psychological anguish from losing money than the level of joy you derive from making it in the market. That's called loss aversion and can short-circuit you brain to react sooner and more drastically to losing money than you do making money.

While not all biases are bad or even counter-productive with investing, most mistakes arise from a foundation of biases that are often not even apparent to the investor themselves. As such, it's usually beneficial to self-reflect and identify what biases might be subverting your own investing success.


My best advice in times of volatility is usually, "don't just [do something, sit there!] This often strikes my clients as a little bit crazy, yet you would be surprised at how often people want to sell out of the market (or even their accounts), or become more conservative with their portfolios simply because of their feeling that something bad is about to happen, fully admitting that they have no specific evidence or facts to back it up. They can't imagine doing nothing, but what I tell them is that the time to do something was probably six months prior and they should be very leery of selling into a dropping market. Many will then tell me that that they don't know why the market is down or why it might go lower, but they still want out because it's going down. Which at a fundamental level is bananas.. They might tell me they can't sleep or they will get back in when "things look better." And I respect that. But they rarely can define to me what that better environment looks like, or what events or trends that might resemble. They often imply they will simply know. They speak with confidence that seems to derive from some form of divine inspiration, as if their chosen deity cares about the stock market. Housing "looked better" in 2021 than it does today, but no one I know looks back on last year as anything but an unfortunate time to buy a house (or anything else).


Another strategy continues to come up as a topic of conversation with many of my client who are sitting on too much lazy money in the bank, a.) earning nothing and b.) getting massively debased by inflation. The most popular with me and most others involves depositing a lump sum of money into their investment account, leaving a large portion of it in cash and then using that to invest small amounts back into the market every month until the cash balance is depleted. The plan is usually to do so regardless of what is happening in the markets. This is called Dollar Cost Averaging (DCA), and most of my clients are intimately familiar with what is a five-dollar phase for a very simple concept, one that allow clients to hedge their bets when deciding 'the right time' to be putting money into the US stock market. By allocating a set amount every 30 days for a set period of time, we rest assured that if the market goes up, at least we have some skin in the game. If it drops, we're buying on the way down (which has been historically very lucrative.) And if the market goes sideways during the DCA period, then we are no worse off than had we invested it all at once.

I recognize that all of the above above are pretty cliché (but wholly accurate and very lucrative!) ideas that you've probably heard before, and that's my official answer to "what are we gonna do?"

My more unofficial position is that yes, everything looks like *^@# right now, and the triple whammy of a.) rising interest rates, b.) hyperinflation and c.) war/oil is weighing heavily on the markets. It's a mess out there, it's hard to see anything to suggest it's going to get better anytime soon, and you're most assuredly not alone in your concerns- even I frequently find myself surprised at how well the market is holding up in the midst of all of this chaos. In fact, I often get annoyed when markets remain stubbornly high because I may be the only person I know who actually wants the market to go down further and be cheaper than it is, and for a really long time. Like an opponent of Mike Tyson. I want it to be a yard sale of crap that no one wants to even drive by for the next five years, so that I can just roll up and grab as much as I can afford of everything not screwed down. I'm in the only business I know where people hate buying the product on sale, and get excited (and even wait until their desired products rise in cost) to buy more of it.


Here's are a few other ideas to consider as we all navigate this sketchy market:

  • Sad to say, but for many people cash is no longer a viable option for anything beyond emergency funds and short term (1-2 year) needs. In fact, "cash is trash." The current Presidential administration (and the one before it) along with the Federal Reserve made some rather questionable decisions with the money supply over the last two years, including printing up a lot of it to bribe everyone to do what they wanted, and now the chickens have come home to roost. Who knew that allowing a group of individuals with virtually no real-world business nor economic acumen nor experience to make high-level financial decisions might backfire. It turns out that Modern Monetary Theory (MMT) was a terrible idea, despite being hatched in higher academia. It argues that prosperity can be created and maintained by simply printing more money, without any other actions (like taxes and increased productivity.) Bernie Sanders thought it was a real possibility for success so who could have seen that coming. 
  • The government economists are now claiming that inflation is 8.5%, the highest in over 40 years and frankly, insane. But since we have established previously that governments tend to lie about (or at least manipulate) many things – GDP, Unemployment and CPI being the most fudged- we can also assume that inflation is at least double this- at least 12-15% (They no longer count energy or food in their core 'headline' inflation, which is super-convenient for them!) The cost of a basket of goods could go up from here, and it may go down, but it's never going back to where it was. That's not how capitalism works. Soda is no longer a nickel, and we have to accept these higher prices and adapt. Right now, adapt means that you have to employ your capital somewhere it can grow, understanding that nowhere is completely safe but your biggest risk could be doing nothing at all. 
  • As we experienced in the 70's (I was there, too!), every dollar we keep in the bank is losing more than a percent each month. You can see this nowhere more clearly than the residential real estate sector. News flash: your home is not going up in value as much as the dollar is going down in value. That is a really important point that every investor must understand and internalize. What started in residential real estate in 2020 is only now trickling down into the greater economy, but it's been here all along. It takes time for reckless monetary and fiscal policy to work it's way through the system before it ultimately manifests itself in $4 milk. I think almost everyone should own some property in order to be successful and diversified financially, but jumping into the real estate market over the last few years was not rocket science, and you are not brilliant for owning property that went up in value 30% in 2021. You're probably just simply smart.   
  • So we've established that cash is the only guaranteed loser for 2022. If you’re sitting on too much of it- which it seems almost everyone is- your purchasing power is being gradually eroded each month, it’s not going to stop anytime soon and this is a tremendous threat to many Americans, especially retirees living on fixed incomes and unable to enjoy Cost of Living Adjustments (COLAs) at work. Don't kid yourself- our current policy (and it is a policy) of financial repression - printing money while keeping rates artificially low- is directed towards retirees, the generation who is believed to have the majority of resources in our society today. By printing more currency, the Federal Reserve is knowingly stealing from "the rich" (the oldER, who usually have more resources as an age demographic than average) to give to "the poor" (the younger, who's financial statements are composed of mostly expenses and liabilities.) Maybe you think that is fair but regardless, it's something worth fighting against.
  • It should be clear to most of my clients that right now, traditional bonds may be a very dangerous option as well. In a rising interest rate environment, they should struggle. And if rates rise too fast or too high, consequences for owning anything with a low interest rate, high duration or low credit rating could be severe.
  • Commodities are unlikely to be a viable option moving forward for obvious reason, and this is the same for crypto-currency. Both have their days, but the vast majority are the instruments of hucksters used to exploit speculators, and may not provide the protection they are designed for. Like the early days of the internet, many investors will be left disappointed. Some will lose everything.
  • For many investors, real estate seems a safe and reliable refuge and to be fair, in an ultra-accommodative (i.e. low interest rate) environment, it's done very well throughout the pandemic lockdowns and the aftermath. This goes for tangible property as well as it's many derivatives (stocks, REITs, syndicates, crowdfunding, etc.) However, anyone investing in commercial properties as leases come up for renewal over the next few years-with large swaths of the workforce potentially never returning to a physical office building- may experience intense buyers remorse. On the other end of the real estate spectrum, those considering residential real estate investments- with valuations at all-time highs and interest rates just beginning to rise- are advised to beware. As we discussed earlier in the series, the Federal Reserve just raised rates a measly .25% and suddenly mortgage rates are already above 5%. That is a remarkable turn of events for such a small adjustment, as Wall Street is certainly pricing in more. (Strangely, CDs and mmkts haven’t budged, shocker!)
  • Their is building consensus that the Fed will raising rates at least another percent more in 2022 (and that’s arguably best-case), which means mortgage rates above 6% are pretty much baked in to the cake, and I proclaimed previously that even 7% mortgage loans are feasible before the end of the year. Just imagine (and commiserate with) our youngest and newest entrants into the workforce and adulthood - many already saddled with crushing debt, lower-quality professional opportunities and a mindset that the world owes them the same 3% mortgage rates that previous generations enjoyed. As a result, many first-time homebuyers could be facing a monthly housing payment that is double 2021 estimates. It is wholly possible that you and I will likely, eventually and graciously assume their student debt loads, but their balance sheets will still remain strained when applying for a home loan. I don’t know how it is where you are, but if you don’t have a cash offer on a home in the Texas Hill Country right now, you’re not even a top five contender for the home. And even the top five are bidding up central Texas homes about 30%.
  • As a result of these market dynamics, some investors feel that this environment and it's many unprecedented risks only leaves room for stocks, and some even believe this is exactly what the Federal Reserve is trying to cultivate with it's financial oppression regime. This is the so-called "TINA" market- “There Is No Alternative.” So where to go in stocks? No one knows. Growth and tech stocks flew close to the sun last year on the back of zero-interest rates, but have are now returning a bit back down to Earth. The NASDAQ is down -16% in 2022, and it’s could continue to struggle because rising or high interest rates act as a headwind to growth stocks. That could make growth stocks the most beaten-down and therefore next best-deal in the market, but no one can speak intelligently on whether or not markets could drop further from here.
  • Because of this, many investors including myself are left wondering if that leaves only value stocks - boring blue chips - as a viable option. While they offer a more consistent and reliable counterweight to growth stocks and funds, value holdings may continue to suffer from stubborn supply chain issues – and probably will for the next 2-3 quarters. This is especially true if manufacturers are unable to produce enough product to meet demand. Ford is a great example, already down -30% stock in 2022 despite having a waiting list of tens of thousands willing to pay $5K deposits and 10% over MSRP for the new Ford Bronco.
  • Fortunately, our models began moving into value last fall and have not stopped. This is probably the main reason our clients portfolios are (in some cases) only down about 1/3 or 1/2 as half as much as the overall market’s losses this year. Many don’t realize it but they are in a strong position with these value-heavy equity mutual funds. The hope is that our investors may be shielded to some degree from the new (and literally unprecedented) risks of cash and bonds, while also being somewhat protected from the most frothy sectors in the economy. In some respects, value stocks are stuck in a Goldilocks’ position where you’re not too far on either end of the spectrum.


My advice for many clients varies from case-to-case but is usually to stay where they are, bear the burden of the invariable market vicissitudes like almost every other investor on the planet (and every other past correction), accept the possibility (though not the guarantee) of some sustained periods of double-digit losses and-  if it is deemed appropriate by you and your advisor - hide out in less-volatile value stocks, collect dividends and live to fight another day. Some might argue that keeping some exposure to Big Tech is warranted, because they clearly have enormous influence on both the government and media (not to mention the consumer)) and WILL find a way to retain their market leadership positions while still making money (for example, Microsoft has mortally wounded all of my computers this past month with their required and forced Windows 11 “upgrade,” driving me ever-closer to upgrading to a newer version.) 

Again, my concern is interest rates and I suggest that this should be the primary focus of all investors over the next several quarters, and may trump all other economic metrics. Keep in mind that the Fed is a bit screwed. If they keep rates low to keep money cheap and to protect the incumbent party in the November elections, then they screw the poor and also they hurt the dollar. On the other hand, if they raise rates too high or fast to get control of inflation- which is the prudent and adult thing to do (like Carter-appointee and last great Fed chairman/hero, Paul Volcker, did for Reagan in the early 80s)- then they will start the clock of the next market correction that may (temporarily) hurt the rich.

For most investors, I definitely discourage doing anything drastic as this market continues to find its bearing. By Q1 2023, some economists think that our global and domestic supply chains SHOULD be relaxing, inflation should be moderating, oil prices may lower from their current stratospheric heights, and the Fed could pause rates at or around 1-2% above where we are now (i.e. signaling no more hikes). It's also expected that both houses in the US Congress will flip in in November, leaving us with a gridlocked government, which may not be good for the country but will be for the market. Some conservatives may feel less threatened by the President (i.e. climate legislation and other executive actions), find other distractions and will stop watching so much Fox. And the businesses and workers of America will get back on the well-worn path of overworking themselves into an early grave to hyper-consume stuff they will eventually discard crap, thereby doing their best to put this quasi- and sometimes barely- capitalistic economy back together again. At least that’s how this has gone historically. 

The key is this: Don’t bet against the American consumer, we all love stuff and will do whatever we have to do to cover at least the down payment. We can worry about the financing part after we pick the color and trim.

Remember that although women are better investors than men, Wall Street is full of men. This is mot likely because of a.) testosterone and b.) it’s not their money. They tend to be 6-9 months ahead of the economy because they can make bets with our money that are more difficult for us to do on our own volition. As a result, by the time CNN and Faux tell us the economy is hitting on all cylinders again, the big gain may have already happened. I'm often reminded of March 2009, when Treasury Secretary Hank Paulson got on one knee and begged Speaker Nancy Pelosi for $700B+. (I’m old enough to remember when that was A LOT of money.) If she doesn't get the votes to do it that next morning, the banks don’t open and the entire world banking system starts a domino collapse into oblivion. From that week until that Christmas, the stock market rose 50%+. That’s because the best days in the market almost always precede the worst days.


This is nothing like that environment. Until it is, my [generic, high-level (non) investment advice to no one in particular] is to stay the course, live your life, continue to invest in your future financial objectives, and try not to look too often at your portfolio statements. If you're still unsure, or would like to visit on the economy, the markets or your portfolio, please reach out to your Certified Financial Planner to schedule an appointment. Or if they're too busy or uninterested, you can always schedule one with me!


Part I of this series is located here.