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Creating More Emissions while Driving Up Prices
Even first round effects of the proposed agricultural emissions pricing scheme will see:
- Agricultural production shifted abroad to more inefficient, carbon emitting economies given that N.Z. is the lowest carbon emission producer;
- Prices, notably consumer prices for food, will likely increase when substitutes are imported as production falls; and,
- Even existing “Green” treaty commitments specifically state that policies dealing with climate change should be designed such that they do not affect food production.
The logic here does not seem that difficult to understand. Even the politics of the proposed scheme tests rationality severely.
Managing Bear Market Performance
There is of course no fancy way or means whereby you can either:
- Avoid bear markets. They are a fact of investment life; or,
- Devise ways of beating these markets. They are capital markets.
You can however understand and thus try to manage the type and extent of your exposure to risks arising in bear markets. Understanding their broad characteristics is a rational place to start. The past helps – somewhat – with this.
Definitions
- Bear market – a 20% drop from a recent (material) high
- Correction – a 10% drop from a recent high.
Recovery or move to a new phase involves observing reversals in these. Two things to notice. First the numbers are arbitrary – but so are any numbers. Consistency is more important than being overly precious. Second, a bear market may be well underway prior to its being noticed.
Characteristics (based on US equities – a good enough global proxy)
- The average bear market sees a 36% drop in prices
- The average bull market sees a 114% gain in prices
- Since 1928 26 bear markets in the US
- Since 1928 27 bull markets
Thus long run equities have gained and that by a significant margin over that period, bears have ben unavoidable but so have bulls so simple “buy and hold” would have won handsomely had it been stuck to.
- A bear market lasts an average of 280 days or 9 months
- A bull market lasts an average of 991 days or 2.7 years.
Do these change? Of course they do. These are averages. Reality unfolds in cases.
Undershooting and Overshooting
- half of the strongest days in the last 20 years occured during a bear market; and,
- A third o best days in a bull market occurred in the first 2 months of that market.
It is close to impossible to “time” this sort of price behaviour.
Conclusions
- Up beats down over the long run
- Most action has occured before we are aware of it
- Stay invested – you wont “pick” changes easily
- Equities have risen 78% of the time over the last 92 years.
Over a 50 year time horizon expect 14 bear markets but expect not to know when they will occur.
For portfolio strategies to help cope see THE FINANCIAL STRATEGIES GROUP LTD FAP -FSP771591.
Eye2theLongRun 