Sticking With Stocks in Bear Markets
Comment posted to “The Danger of Getting Out of Stocks During Bear Markets,” by Charles Rotblut, CFA, in the May 2014 AAII Journal.
I refer to an article written in the January 2009 AAII Journal by Dale Domian and William Reichenstein called “Stocks for the Long Term: Why Prospects Are Rosy.” This article said “stay the course”—do not bail out of stocks. This article saved me over $100,000! I never sold any stocks and kept my allocation the same, and now I’m up over 200% from the February 2009 lows thanks to AAII’s article. Sometimes the best thing to do is nothing!
—Richard Abbott from Florida
This is an informative and well-written article on the perils of getting out of stocks. It seems like it may have a touch of confirmation bias in it, though, in that you chose a panic scenario for getting out of stocks. A number of financial services provide systematic, non-panic-driven approaches to timing the market, on the theory that avoiding most of the bad times is worth giving up some of the good times. It would be interesting to see the current three scenarios compared against a more optimistic fourth scenario that times the market in a systematic way—perhaps using a moving average crossover criterion or some other non-proprietary mechanism. If this fourth scenario also comes out inferior in practice to the buy-and-hold and buy-and-rebalance approaches, I think your conclusions against timing the market would be much stronger and persuasive.
—John Hawk from Massachusetts
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