Is This A Bear Market?

Are we there yet?  The week before last, the TSX dropped 11%, last week it dropped 16%.  Oddly enough on Friday I was expecting the worst day so far since the Asian markets had crashed about 8% and the Japanese market had dropped almost 10% overnight.  When the TSX went down 5.5% I felt oddly relieved since I was expecting more.  5.5% drop in one day and I thought that was acceptable!  Yes, this is a bear market – not one of those cute and cuddly, babyish, koala bear type of markets where maybe you lose part of a year’s gain, but rather a far more vicious, huge grizzly bear that is intent on ripping out your insides until you sell what is left of your holdings.

I haven’t had the courage to actually see how much damage has been done to our portfolios, however I know that it won’t be as bad as the actual market declines for the following reasons:

• We aren’t 100% invested in stocks – We started the year with 75% equities and 25% fixed income.  Now partway through the year I did switch some of the bonds to REITs – which have done ok, but not great.  Part of the bonds were real return bonds (known as Treasury inflation-protected securities in the US) which apparently haven’t done all that well for some reason.  Regardless, having any kind of non-equity investment in your portfolio will reduce the decline in a bad market.
• Some of the portfolio is temporarily in cash – As I discussed a few weeks ago, we are moving our accounts to RBC to take advantage of the 1% bonus offer.  Since my wife’s accounts were invested in mutual funds, they were all sold about 2 weeks ago and the transfer was done in cash.  This was done because we wanted to convert her holdings into ETFs.  I checked on the weekend and the funds that she had been holding were down about 20% in the last two weeks.  Her investments represent about 1 third of our total investments so this cash holding will really help out.  The hard part of course is pulling the trigger to buy – that might take some courage!  I’d like to say this was the result of some brilliant market timing but of course – it was sheer luck!  Of course the falling dollar isn’t helping since all the cash is in Canadian dollars but what can you do?

Note [added Monday, Oct 13] – the various markets have all gone up some astonishing amounts so it looks like we should see a rebound in the Canadian market today.