John Rothchild  John Rothchild is the bestselling author of the critically acclaimed A Fool And His Money, and Going For Broke. He co-wrote, with Peter Lynch, One Up On Wall Street, Beating The Street, and Learn To Earn. A Former Editor of Washington Monthly and financial columnist for Time magazine and Fortune , Mr Rothchild has also written for Harpers , Rolling Stone , Esquire , and many other periodicals. He has appeared on The Nightly Business Report, the Today Show, and CNBC. Books The Davis Dynasty , John Wiley, 2001 The Bear Book , John Wiley, 1998 A Fool and His Money , John Wiley, 1997, with Peter Lynch One Up on Wall Street , Simon & Schuster, 1989 Beating the Street , Simon & Schuster, 1993 Learn to Earn , Simon & Schuster, 1995 Surviving a severe bear market -
Long- term may be longer than you think. After severe bear markets, there are apparently endless stretches when little, if any, money is made from owning a typical portfolio of stocks. Judging by the Dow Jones Industrials, when stocks get ahead of themselves and falter, it can take many years - not many months - for them to regain lost ground. The overused example is 1929, when the Dow topped out at 381 and took 25 years to go higher. Similarly, the Dow hit 685 in 1957 and traded lower than that in 1970. It hit 995 in 1966 and traded at 776 in 1981. People who aren't prepared for a decade or more of mediocre to nonexistent returns, especially after an exciting run-up that often precedes these bearish intervals, tend to lose enthusiasm for buying and holding, and often quit the market at disadvantageous times. -
After the bears ruin the party, don't keep dancing with the same old stocks. Stocks that lead the rally to the top in late stages of bull markets - witness the so-called Nifty Fifty group in the early 1970s - aren't likely to lead the rally off the bottom in late stages of bear markets. Newer, smaller, and faster-growing companies rise to the top. -
Don't be tempted by sucker rallies, unless you can love them and leave them. Severe declines and lengthy recoveries (1929-1949; 1969-1981) are enlivened by exciting rallies that take stock prices to as much as a fourfold gain. These gains are lost just as readily, and the true recovery may lie years ahead. -
When the last Chicken Little is debunked, the sky finally falls . As stock prices rise into the thin air of overvaluation, leading to a big fall, all the bearish prognosticators are proven wrong. In the mid-1990s, for instance, numerous high-profile Wall Street types turned publicly bearish, then lost credibility as prices continued to advance for five more years. At the market top in early 2,000, no high-profile bears were left to sound the alarm. -
When bears rule the street, it pays to own things that pay you to own them. This includes stocks that pay high dividends , preferred stocks, REITS, convertible bonds , and balanced mutual funds that own a mixture of the above assets. If it takes years for stock prices to rise, you might as well get some return while you wait. -
50 million Frenchmen can't be wrong, but a consensus of economists can. Recessions are bad news for the stock market, and severe recessions can be terrible news, but don't rely on 'most economists' to give you the early warning. According to published reports , 'most economists' agreed the U.S. would avert recession in 1969-70, 1973-74, 1981-82, and 1990. They were wrong all four times. -
Beware the New Era. Every new generation or so, there's talk of a 'new era', a Camelot where the economic climate is forever balmy, and companies bask in a garden of prosperity . New era talk was popular in the late 1920s, the late 1960s and the late 1990s. In the first two instances, these new eras led into the worst two bear markets of the 20th century. The latest new era was followed by the great technology bust when investors in the tech-heavy NASDAQ market were down more than 50 percent from NASDAQ's high. -
Even bonds aren't bear proof. Bond investors lose a lot of money in severe bear markets, such as the one that lasted 34 years from 1947 to 1981. -
Your mutual fund won't save you. Numerous big- name funds from the 1960s were gone by the end of the 1973-74 market wipe-out. Fund assets overall were down more than 30 percent. -
Ride with small stocks in post-bear rallies. Small stocks tend to outperform off the bottom of bear markets, while larger-cap stocks tend to outperform near the tops of bull markets. 'Be leery of any company in which the analysts raise their target price while cutting earnings estimates. It simply doesn't make sense unless they're trying to hype it to issue stock.' ”Herb Greenberg |  |
