How to Survive a Bear (Market) Attack

The National Park Service offers great advice on how to survive a bear attack.

“PLAY DEAD,” says their official website.

Well, that is if you’re being attacked by a brown/grizzly bear.

If, instead, you’re being attacked by a black bear, the advice changes.

“Do NOT Play Dead!”

The site goes on to further explain that, unfortunately, you can’t always tell which species of bear you’ve encountered by size and color alone – making that decision to play dead, or not, all the more difficult.

Granted, investing in the stock market is never a matter of life and death.

But long-term wealth creation does require you to navigate bear markets every so often. And just as the Park Service recommends a different survival strategy, depending on which type of bear you encounter, you too must embrace the fact that what works in a bull market doesn’t work in a bear market.

You see, bear markets are not mirror images of bull markets. People think they can just invert their strategy and be done with it.

But bear markets are a completely different beast. That can be particularly frustrating for investors who recognize a bull market is ending, but (understandably) don’t know how to trade a bear market.

Take, for example, the S&P 500’s recent rally. As of Monday’s close, the S&P 500 was up 5% in just five days. That’s a monster short-term rally!

And if you asked people – “Are you more likely to see that kind of rally during a bull market or a bear market?” – most would expect to see that kind of strength during a bull market.

But that’s not what the numbers show. In fact, a rally of 5%-in-five-days is about three-times more common during bear markets! Take a look…

So even tough stock markets spend more time in bullish trends – in other words, climbing higher – than bearish trends… sharp, short-term rallies are actually more common during bearish ones. And as you see, the 5%-in-five-days variety have occurred about 4.3% of the time during them, versus 1.6% of the time during the market’s much longer bull runs.

That’s what I mean when I say “a bear market isn’t a mirror image of a bull market.” And that’s why investors must truly adapt to a bear market, rather than simply “inverting” their previous strategies.