The_Bull_Market_Finally_Ends
00:00:00.000 | Hello everybody, it's Sam from Financial Samurai and it is March 11, 2020.
00:00:06.440 | And it is officially a bear market in the Dow Jones Industrial Average.
00:00:10.280 | And we're basically almost in a bear market with the S&P 500 down about 19%.
00:00:15.400 | Now down 20% from the high is an arbitrary number, but that's something we've arbitrarily
00:00:20.680 | used since the history of the stock market.
00:00:24.140 | So the last bear market for the S&P 500 ran from October 9, 2007 through March 9, 2009.
00:00:32.500 | So not that long, but the index did fall about 57% in that 17-month period as the US housing
00:00:39.820 | downturn and mortgage crisis erupted, triggering a credit crunch.
00:00:44.900 | This time, a recession is not being triggered by a financial crunch, but obviously the coronavirus
00:00:51.340 | and the paralysis of consumers to spend money to go out and so forth.
00:00:56.500 | You're going to see massive knock-on effects with freelance workers getting hurt because
00:01:01.740 | they simply cannot deliver food or drive cars and so forth.
00:01:06.680 | So on average, bear markets have lasted about 14 months in the period since World War II,
00:01:12.460 | while market corrections have lasted on average about five months.
00:01:15.820 | The S&P 500 index has fallen an average of about 32-33% during bear markets in this time
00:01:22.260 | period.
00:01:23.340 | So if you want to do a not-so-fun exercise, take whatever equity exposure you have in
00:01:28.980 | the markets right now and then lop off another, let's say, 12-15%, and then you're going to
00:01:35.180 | have the average decline in the average bear market.
00:01:38.500 | So if you can withstand that other 12-13% hit, hopefully you should be okay.
00:01:44.500 | And that hopefully means you have the proper risk exposure.
00:01:47.620 | Now, history has also shown that the faster an index enters into a bear market, the shorter
00:01:52.380 | they tend to be.
00:01:53.820 | Historically, stocks take 270 days to fall into a bear market.
00:01:59.060 | Now this market, well, we got here in under 30 days.
00:02:03.800 | So hopefully we're going to see a faster recovery.
00:02:07.640 | So when the S&P 500 has fallen 20% at a faster clip, which is what we're experiencing now,
00:02:13.780 | the index has averaged a loss of about 26%.
00:02:17.960 | So to do some not-so-fun analysis, take whatever your equity exposure is and lop off another
00:02:23.540 | 6% and you're going to get to that average.
00:02:26.180 | Now of course, nobody knows what's going to happen in the future.
00:02:30.060 | But if you look at China, China first quarter GDP is in the dumps, obviously, but you're
00:02:36.420 | seeing a resumption of economic activity because there's been a drastic slowdown in coronavirus
00:02:42.900 | new cases and deaths.
00:02:44.900 | So what you'd expect to see is a V-shaped recovery in the China market, which is kind
00:02:49.540 | of what you're seeing right now.
00:02:51.620 | And you also see in the China equity markets, the local markets rebound quite nicely.
00:02:57.540 | So let's say we are one month behind China.
00:03:00.820 | Hopefully we can see and experience what they are seeing and experiencing right now.
00:03:05.820 | But the problem is, Americans, we are a democracy.
00:03:08.860 | We like to do whatever we want.
00:03:11.100 | I was at the tennis club the other day for three hours playing tennis and it was packed.
00:03:14.740 | It was packed between 3.30 and 6.30 p.m.
00:03:17.660 | Whereas in China, it's just a much quicker directive.
00:03:20.940 | Stay inside, don't do this, don't do that.
00:03:23.220 | They built a thousand bed hospital, what, in like two weeks or something like that.
00:03:28.580 | Whereas if you try to get that done here in San Francisco, it would take maybe two years.
00:03:32.100 | It's just so much bureaucracy, so much individualism, which is part of what makes America great.
00:03:38.260 | But it's also one of our weak spots.
00:03:40.860 | When people start telling us what to do, nobody likes to get told what to do, especially here
00:03:45.660 | in America.
00:03:46.660 | I will say that this time period right now feels quite similar to the 9/11 tragedy.
00:03:52.620 | I remember that quite clearly because I was at the top of the World Trade Center for a
00:03:57.860 | conference, a Latin American emerging conference, just two weeks or three weeks before.
00:04:03.820 | And I lived at 45 Wall Street, which is only a couple blocks away or so.
00:04:09.100 | And it was a devastating time.
00:04:11.140 | But I remember the country came together on both sides of the political party.
00:04:16.500 | Yes, there were some ugly incidences of racism and a lot of fear mongering.
00:04:22.600 | But I remember New York City, Manhattan, especially coming together to help everybody in need.
00:04:29.080 | And I think and I hope this is exactly what's going to happen in the United States today.
00:04:33.940 | You know, there's still a lot of denial about the coronavirus negatively affecting people.
00:04:41.420 | And look, chances are high that you won't get it.
00:04:45.060 | And if you do get it, chances are high that you will survive.
00:04:48.340 | It's only after about the age of 60 and 70 where the death rate starts to massively tick
00:04:55.500 | upwards to the 5% to 8% level.
00:04:58.700 | What's interesting to note is that during the SARS outbreak, I was reading that no kids
00:05:03.340 | under five or 10 died from SARS.
00:05:07.500 | And it does look like so far in 2020, children are not as affected by the coronavirus for
00:05:15.200 | some reason, maybe it's the developmental process of their lungs or whatnot.
00:05:19.180 | I'm not a scientist, but that's just what the facts are.
00:05:22.280 | If your kid is under five or 10, he or she is safer than the rest of the older population.
00:05:30.740 | And speaking of toddlers, I took my son out of preschool this week because it just didn't
00:05:35.100 | make sense that many companies around the Bay were encouraging or actually forcing their
00:05:40.580 | workers to work from home.
00:05:42.660 | So why the heck am I putting my child at risk to be in a school of 50 other kids and teachers?
00:05:50.460 | It just felt bad.
00:05:51.460 | I felt really, really guilty.
00:05:53.980 | So I brought him home and we've been spending a lot of time at the park in the playground.
00:05:57.940 | And I was talking to one of the mothers the other day, and she said she just has no other
00:06:02.740 | choice.
00:06:03.780 | She drops her daughter off at 730 in the morning because she has to get to work by eight in
00:06:08.180 | the morning.
00:06:09.180 | And she picks her daughter up at 530pm.
00:06:13.220 | And it was interesting.
00:06:14.220 | And it's kind of sad because I usually spend about 20 minutes during transition period
00:06:18.660 | when I drop off my son.
00:06:20.300 | And I saw her daughter there on Monday morning and she was coughing and it was clear she
00:06:24.500 | was sick.
00:06:26.540 | But the mother had no other choice.
00:06:29.140 | She had no way to take care of her own child.
00:06:32.880 | So she dropped her child off at preschool.
00:06:36.220 | And unfortunately, she's probably going to get a lot of the other classmates sick, who
00:06:40.780 | are then going to get their parents sick.
00:06:42.900 | And it just never ends.
00:06:43.980 | It's a never ending cycle, because of money or the desire for the money, or the need for
00:06:49.660 | money.
00:06:50.660 | So I'm assuming that this coronavirus pandemic is really going to spur the conversation forward
00:06:56.500 | on universal basic health care, sick leave, vacation day policies, and help for freelance
00:07:04.060 | workers.
00:07:05.220 | Freelance work is totally booming and it's going to overcome normal day job work sometime
00:07:11.140 | in the near future.
00:07:12.140 | However, there's probably a speed bump happening right now because freelance workers simply
00:07:17.180 | cannot make enough money to get by when there's no work.
00:07:21.380 | They don't have the luxury to keep on earning, keep on growing vacation days if they're out
00:07:26.260 | sick.
00:07:27.340 | So this is something that we definitely have to bake in if you want to do freelance work.
00:07:32.900 | I did a calculation a long time ago that you've got to earn about 35% more as a freelancer
00:07:39.820 | or as an entrepreneur to replicate your day job income.
00:07:44.040 | And it's in an article on Financial Samaritan if you want to Google it, basically asking
00:07:48.060 | how much money do you have to make as an entrepreneur to replace your day job income.
00:07:54.780 | And I hear my son climbing up the stairs now as I work from home.
00:07:59.580 | And this is one of the troubles of working from home is there's nowhere to hide unless
00:08:03.440 | you live in a big, big mansion.
00:08:05.700 | Speaking of big, big mansions, I think one of the knock-on effects of the coronavirus
00:08:10.700 | is that homebuyers are going to look for bigger houses now to accommodate one or two people
00:08:16.460 | working from home.
00:08:17.960 | So a bigger house will hopefully have an extra bedroom that can be turned into an office
00:08:22.380 | or a dedicated office and then maybe there's an extra bathroom.
00:08:26.980 | If you look at the data, the average home size is something around 2,500 something square
00:08:31.900 | feet.
00:08:32.900 | It's been declining steadily since 2014.
00:08:36.280 | So maybe, maybe that trend will reverse as we look for larger and larger homes.
00:08:41.940 | Huh?
00:08:42.940 | What do you want Daddy to do?
00:08:43.940 | Play.
00:08:44.940 | You want Daddy to play?
00:08:46.860 | Do you like these cool pictures?
00:08:48.660 | Yeah.
00:08:49.660 | Whoops, I'm back.
00:08:52.260 | Gotta do a little timeout, right?
00:08:53.780 | Take care of my boy.
00:08:55.640 | So maybe I will write a post on working from home survival guide because it can be really,
00:09:00.780 | really tough folks.
00:09:02.420 | And just going back to real estate, I think real estate is very attractive now.
00:09:07.740 | And I'm doing some research on how much the stock market has to go down before real estate
00:09:13.500 | starts getting in trouble.
00:09:15.220 | And the preliminary research and the preliminary thought process is that the stock market down
00:09:20.580 | by up to about 20%.
00:09:22.620 | I think people are just really going to want to gravitate towards real estate because it's
00:09:27.580 | more stable and it is a steady cash flow.
00:09:30.580 | And also because mortgage rates are collapsing, the affordability has increased tremendously.
00:09:36.820 | And so a lot of people are refinancing their mortgages or doing cash out refinances or
00:09:41.000 | getting a loan to try to buy real estate.
00:09:44.180 | Unfortunately, inventory is still quite low.
00:09:47.060 | So I think real estate is really going to outperform the stock market in 2020.
00:09:51.020 | How could it not, right?
00:09:52.020 | I mean, the S&P 500 is down almost 20%, whereas real estate is probably flat up a little bit,
00:09:58.500 | just like the bond market.
00:09:59.620 | But at some point, if the stock market gets too terrible, there's going to be tremendous
00:10:04.340 | fears of a recession, which might override the demand and the desire for property.
00:10:11.420 | In conclusion, I hope this bear market has taught us more about risk tolerance, taught
00:10:17.180 | us more not to confuse brains with the bull market, and has taught us more about the importance
00:10:23.020 | of diversity and the importance of investing in risk-free assets and a diversified number
00:10:27.980 | of assets.
00:10:29.720 | It's really sad after 11 years that the bull market is officially over.
00:10:34.400 | But I think like always, it's good to focus on the positives, on how much we've learned
00:10:39.280 | since 2009, how much we've made since 2009, and how much we've grown as people.
00:10:45.180 | I'm on my fatherhood journey now, and it's going to be for another 18 years, since my
00:10:50.100 | daughter is only 11 weeks old.
00:10:51.660 | And I'm looking forward to getting better as a father, better as a writer, better as
00:10:55.500 | an investor, and better as a communicator.
00:10:57.980 | And I hope all of you guys focus on one or two things you want to get better at as well,
00:11:02.700 | besides just accumulating more money.
00:11:05.180 | Because money at the end of the day is a means to an end, and hopefully that end is a better
00:11:09.520 | life for you and me and for everyone.
00:11:12.280 | Thanks so much, everyone.
00:11:13.640 | Please stay safe.
00:11:15.360 | Please stay hygienic.
00:11:17.000 | And take a look at your assets and make sure you have the appropriate risk tolerance and
00:11:21.000 | risk exposure out there.
00:11:23.520 | It could get very, very dicey.
00:11:25.240 | Again, the average bear market declines about 32%, 33%, and we're only down about 20%.
00:11:32.360 | So fingers crossed, hope for the best, but expect the worst, and I'll see you guys around.