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July 9, 2022, 3:04 p.m. EDT

5 lessons from the bear market

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By Paul A. Merriman

Over the holiday weekend, investors were bombarded with headlines announcing “the stock market’s worst first-six-months in 50 years” and “Tech stocks lose $1.6 trillion in worst streak in six months.”

If you looked no deeper, you’d be likely to conclude that all hell was breaking loose.

Unfortunately, there’s no question about it: The market has thrown a nasty fit this year, and the future is filled with big challenges.

I have no interest in sugarcoating any of the bad news. But thoughtful investors deserve more insight than they’ll get from the financial media’s quick-hit conclusions.

Here are five lessons that perhaps you didn’t read about.

One: The first half of this year wasn’t even close to the worst six months investors have faced in the past 50 years. At the end of February 2009, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +2.13% was down 41.8% from just six months earlier.

I’m not relating this in order to make you feel better. I think you should know this because things could (and probably sometime in the future will) be considerably worse.

Warren Buffett and other legendary investors have said that you shouldn’t be invested in the stock market unless you are willing to lose half your money at some point.

One unpleasant fact of life is that losses in the stock market are normal. So are recoveries, which usually start suddenly when hardly anybody is expecting them.

Two : The S&P 500’s 20% loss is significant, but growth-stock investors had it worse: Vanguard’s large-cap growth fund /zigman2/quotes/200070455/realtime VIGRX +2.98% was down 30.4% for the year, through Friday.

The aggressive ARK Innovation ETF /zigman2/quotes/204808965/composite ARKK +7.37% , with nearly 22% of its holdings in just three stocks — led by Tesla /zigman2/quotes/203558040/composite TSLA +3.89% — was down 55% for the year through Friday, as some of the stock market’s former darlings turned to dogs.

Motley Fool published a list of the worst individual stocks in the first half of the year (through June 29), including four that lost more than 62%: Netflix /zigman2/quotes/202353025/composite NFLX +6.16% , down 70.6%; Etsy /zigman2/quotes/202790087/composite ETSY +7.38% , down 66%; Align Technology /zigman2/quotes/200300692/composite ALGN +5.18% , down 63%, and PayPal Holdings /zigman2/quotes/208054269/composite PYPL +4.69% , down 62.1%.

Three : Many people have been seriously let down by some popular alternatives that were sold as hedges against inflation and bad times in the stock market.

Bitcoin just finished its worst month in the 12 years of its existence, down more than 38%. Ether, the world’s second-biggest cryptocurrency in terms of market capitalization, lost about 47% in the first half of this year.

Four : Diversification helps, even though it usually can’t turn a losing period into a winning one.

In a recent article, Five great equity strategies over the past 94 years, I described four relatively simple U.S. equity strategies as alternatives to the S&P 500. Here’s how they held up in the first half of this year, based on best-in-class ETFs :

·      U.S. Four-Fund, down 14.3%; (25% each /zigman2/quotes/214415979/composite AVUS +2.21% , /zigman2/quotes/202009318/composite RPV +1.59% , /zigman2/quotes/208653303/composite IJR +2.15% , /zigman2/quotes/214415983/composite AVUV +2.32%

·      U.S. Two-Fund All Value, down 10%; (50% each RPV and AVUV)

/zigman2/quotes/210599714/realtime
US : S&P US
4,210.24
+87.77 +2.13%
Volume: 2.22B
Aug. 10, 2022 5:27p
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/zigman2/quotes/200070455/realtime
US : U.S.: Nasdaq
$ 134.39
+3.89 +2.98%
Volume: 0.00
Aug. 10, 2022
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/zigman2/quotes/204808965/composite
US : U.S.: NYSE Arca
$ 51.57
+3.54 +7.37%
Volume: 29.01M
Aug. 10, 2022 4:00p
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/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
$ 883.07
+33.07 +3.89%
Volume: 31.64M
Aug. 10, 2022 4:00p
P/E Ratio
106.36
Dividend Yield
N/A
Market Cap
$887.82 billion
Rev. per Employee
$676,463
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/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 244.11
+14.17 +6.16%
Volume: 9.25M
Aug. 10, 2022 4:00p
P/E Ratio
21.71
Dividend Yield
N/A
Market Cap
$102.26 billion
Rev. per Employee
$2.75M
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/zigman2/quotes/202790087/composite
US : U.S.: Nasdaq
$ 116.90
+8.03 +7.38%
Volume: 3.93M
Aug. 10, 2022 4:00p
P/E Ratio
41.21
Dividend Yield
N/A
Market Cap
$13.78 billion
Rev. per Employee
$1.00M
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/zigman2/quotes/200300692/composite
US : U.S.: Nasdaq
$ 287.81
+14.17 +5.18%
Volume: 717,337
Aug. 10, 2022 4:00p
P/E Ratio
36.84
Dividend Yield
N/A
Market Cap
$21.56 billion
Rev. per Employee
$177,009
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/zigman2/quotes/208054269/composite
US : U.S.: Nasdaq
$ 98.91
+4.43 +4.69%
Volume: 17.08M
Aug. 10, 2022 4:00p
P/E Ratio
57.08
Dividend Yield
N/A
Market Cap
$109.41 billion
Rev. per Employee
$850,388
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/zigman2/quotes/214415979/composite
US : U.S.: NYSE Arca
$ 72.24
+1.56 +2.21%
Volume: 224,111
Aug. 10, 2022 4:10p
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/zigman2/quotes/202009318/composite
US : U.S.: NYSE Arca
$ 79.40
+1.24 +1.59%
Volume: 551,237
Aug. 10, 2022 4:10p
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/zigman2/quotes/208653303/composite
US : U.S.: NYSE Arca
$ 103.03
+2.17 +2.15%
Volume: 3.17M
Aug. 10, 2022 4:00p
loading...
/zigman2/quotes/214415983/composite
US : U.S.: NYSE Arca
$ 76.81
+1.74 +2.32%
Volume: 668,563
Aug. 10, 2022 4:10p
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