I am still here and working after 39 years of giving financial advice. I have seen clients through long retirements and many life changes, some wondrous and some traumatic. I have also seen quite a few bear markets. During the 2008 bear market I wrote an article about how that market was different. In fact, every bear market is unique.
The correction in 2018 may or may not be classified as a bear market depending on the “expert” you listen to. I think it shares a number of characteristics of bear markets whether it officially counts or not.
We did see P/E ratios contract in 2018. In most bear markets this is the result of falling prices (the top or numerator of the fraction). In 2018, we did see prices fall. At the same time that year we saw rising earnings (the bottom or denominator of the fraction). Therefore, we witnessed P/E ratios fall in 2018. Another common occurrence in bear markets is that selling becomes illogical and sometimes indiscriminate. During the fourth quarter, I witnessed a number of sell offs that fall into this category.
It’s always easy to look back at previous bear markets and see the great opportunities. The challenge is identifying the opportunities as they arise. When the tech bubble burst there were amazing opportunities created. I will honestly say that I missed some great opportunities in the technology space created during that bear market. What I did not miss was an opportunity to buy all stocks at a discount. There was another opportunity to buy any and all stocks during the Great Recession. A more specific opportunity was created in preferred stocks, convertible and high-yield bonds.
Most of my clients do not think about the opportunities created by bear markets. They focus on the dollar amount that changes on their statements from one month to the next. I do have a few clients who called during the fourth quarter and asked the right question, which is “What should we be buying?” When prices drop without logic or discrimination, opportunities are created. The worse the market gets, the greater the opportunities.
I’ll think about what we should be buying, but when you are presented with all-you-can-eat buffets of opportunities in the markets, that is the wrong time to start a diet.
From the desk of Larry Carroll, CFP®
This article was featured in the Winter 2018 Quarterly Newsletter available here:
 The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per share earningsMarket Update, Market Volatility