Bear Market Protection Now?

by | May 16, 2018 | Archives

Is there a Point to Bear Market Protection?

This is a question asked in the May 2018 ENR Asset Management Outlook.  ENR is one of the analysts we use to update our Purposeful investing Course.  ENR CEO Eric Roseman, began as one of my readers 30 years ago. He has far surpassed my ability to analyze markets  and provides this Outlook monthly.  Gary

Here is what Eric wrote in the May Outlook to answer this question.  Is there a Point to Bear Market Protection?

“If you’re a long-term investor in the market, then history clearly supports the ‘buy and hold’ mantra. Stocks outpace most other asset classes over time, especially small-cap stocks. From 1928 to 2016, U.S. small company equities earned 12.2% per annum compared to 9.5% per year for large-cap stocks, according to Seeking Alpha.

And international equities, as measured from 1982 to 2016, saw small-cap stocks gain 11.6% per annum versus 9% per year for large-caps.

So clearly, small-caps have an edge over large-cap equities in the United States and overseas.

Since most of us obviously don’t have an 88-year investment horizon, it’s also instructive to review how stocks fared across various decades since 1930. What’s interesting to observe is how U.S. equities basically didn’t lose money in any ten-year period – even finishing almost unchanged in the 1930s!

The worst decade for stocks?

The first ten years of this millennium when the broader market fell 0.9% per annum:

enr asset management

If stocks are such a great long-term investment – and they indeed are – then why bother hedging a portfolio from market volatility, a bear market or worse, a crash?

If stocks’ long-term trajectory is up, why even bother buying portfolio protection? Taking this theory one step further, why not throw everything into an index fund and go golfing?

Stocks only go up over time, right?

Well, not so fast. Let’s consider some important facts about investor psychology, retirement planning, bear market devastation to finances and stock-market valuations.

Investor psychology: The fact is most investors don’t have the stomach or long-term commitment to hold stocks through ‘thick and thin.’ Amid severe volatility, the majority of investors bail-out of the market and usually, near bear market lows. And who can blame them? It’s an incredibly gut-wrenching thing to just sit there watching your investment portfolio crumble as a bear market eats away at your wealth. It’s no wonder most investors never stick around to maximize long-term compounding; bouts of volatility scare them away.

Peter Lynch, the former manager extraordinaire of Fidelity Magellan (1977 to 1990) averaged a spectacular 29.2% average annualized return during his tenure. Yet most of his investors didn’t reap his rewards because they either traded out of the Fund at the wrong time or bought high and sold low. The point here is most investors don’t hold a long-term investment beyond several years because volatility scares them away;

• Retirement planning. The worst thing that can happen to you (aside from an untimely death) is to lose a chunk of your portfolio in a bear market. As we approach retirement, most CFAs and other industry professionals will recommend an individual increasingly shift assets from stocks to bonds to preserve capital. It’s standard asset allocation protocol. But what if you don’t make that switch ahead of a bear market?

What if you don’t switch enough assets from equities to bonds before a bear market arrives? If a bear market attacks your portfolio and you’re not prepared, a loss of 30% or more will cripple your retirement planning and force you to make critical spending decisions at exactly the worst time of your life-cycle. I’ve heard and read about horror stories whereby older investors lost 30% or more of their wealth in a bear market and never recovered.

Most recently these tragic tales of financial loss occurred in 2008.

Some people lost 50% of their money in that crisis;

ENR Asset anagement

• The math on capital loss and subsequent recovery is incredibly depressing. You almost have to be Peter Lynch or Warren Buffett to recover quickly from a 35% to 50% loss; and even that’s not a guarantee. If you lose 50% of your wealth in a bear market, it’ll take a subsequent 100% return to recover your initial loss. For most investors, that could take years and precious time most of us don’t have;

• Stock-market valuations are near all-time highs. Though you can’t time the stock-market – it’s impossible – today’s price-to-earnings multiple using the Shiller CAPE P/E is 31.77x or almost double the historical median CAPE of 16.15x. Both Professor Robert Shiller (Yale University) and Professor Jeremy Siegel (Wharton) both concur that high valuations coupled with above-average returns in the market since 2009 imply lower stock-market gains in the future. In fact, most U.S. pension funds still project average annual returns of 7% to 8% in the future – and
that’s highly improbable given current multiples, interest rate levels and the withdrawal of quantitative easing in the United States and eventually, in Europe and Japan. Investors are going to have to ratchet down their stock market expectations.

Considering the high valuations of today’s markets and the big advance since 2009, this is probably a good time to start building a portfolio of hedges to protect or offset your potential stock-market losses ahead of the next bear market.

One thing is certain: an economic recession is coming. Whether it arrives in 2019 or 2020, is trivial.

But the economic cycle hasn’t been reinvented.

Recessions are inevitable.

The ENR Crisis Investing Portfolio seeks to achieve a positive rate of return amid extended adverse market conditions.

The strategy invests in securities that have historically displayed a low-to-negative correlation to equities and harbor the potential to post positive returns in an environment of extended market volatility, including bear markets. This actively managed strategy should not be considered a long-term investment and should not represent more than 15% of a diversified portfolio. It is constructed to potentially earn bear market profits; it is unlikely to produce positive returns in a period of rising markets and declining volatility.

The strategy held a total of three reverse-index or short-selling exchange-traded-funds on March 31st and purchased another short ETF in late April. More than foreign currencies or gold, short-selling or reverse-index stock ETFs provide the most bear market alpha, or excess return. In more than 25 years of research, we’ve isolated a host of securities that can provide upside amid market dislocations; but obviously, none are more consistent and more profitable than a short-selling ETF.”

ENR has set up a Twitter account for those who would like early warnings about movements in shares. The account name is ENR_Asset


Stress Less Investing


The stock market has always been the best place of places to protect and increase wealth over the long haul.   Yet it’s also been the worst place to lose money, a lot of it, quickly.

There are only three reasons why we should invest.  We invest for income.  We invest to resell our investments for more than we had invested.  We invest to make our world a better place.

The goal of investing should be to stabilize our security, bring feelings of comfort and the elimination of stress!

We should not invest in social networked protests that guarantee loss.  This is like burning our houses down in protest.

If we want to change the world, we should invest in good equities that bring profit and use the extra wealth to create something beneficial for mankind.

We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.

This is why my core stock portfolio consists of 16 shares and this position has hardly changed in five years.  During this time we have been steadily accumulating the same Top Value ETFs  and have traded only a few times.

The study below shows how a value based model portfolio that dates back to 1969 has outperformed almost every stock market in the world.



The US market has not been even close to the top performer over the long term.

The DQYDJ Dow Jones Industrial Calculator (1) shows that an investment in the Dow Jones (with dividends reinvested) has risen at an average of 10.74% over the last 50 (51 actually) years.


That’s 10.74% is pretty good, but an analysis of 51 years performance of all the developed stock markets shows that (using country indices as hypothetical investments) investing in the top value (not top performing) markets would have returned 12.5%.

The chart below shows the analysis.



An annual return of 12.5% compared to the 10.74% US return is a 1.76% per annum difference.  This may not seem like much,

In the long term the difference is huge.  Calculations from the site (2) shows that $10,000 invested at the 10.74% compound rate turns $10,000 into $1,817,734.62 in 51 years.


Wow, that sounds pretty good until you look at the results of the 12.5% rates.  $10,000 grows to $4,062,362.22!

Investing in the top value (not the top return) markets earned $2,244,627.60 EXTRA!


$4,062, 362.22 means you would have $2,244,627.60 MORE by investing in good value markets versus $1,817,734.62  earned investing in the US market.  That almost 125% more money!

Here are the best value developed markets at this time (as of end of March 2021).

keppler 4-2021


No matter how we look at it, over time, value investing always wins!

Our portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi).  I call these shares my Pifolio.  The course shows how to use the value analysis of Keppler Asset Management to create a portfolio of ETFs that cover undervalued stock markets.  I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage billions of dollars in funds.  However because Keppler’s roots are in Germany (though he lives and operates from New York) all of his funds are registered for the European Union citizens, Americans cannot normally access his data.

I was lucky to have crossed paths with Michael over 25 years ago, so I am one of the few Americans who receive this data so I can share it with Pi subscribers.

The Pifolio analysis begins with Keppler’s research that continually monitors 46 stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  Keppler looks at these numbers and takes market’s history into account.

Fwd: keppler

Michael Kepler CEO Keppler Asset Management.

Michael’s analysis is rational, mathematical and does not worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) markets.

This is an easy, simple and effective approach to zeroing in on value. Little time, management or guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment.  This eliminates the need for hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time and gain incredible diversification because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pifolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that track an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund so they provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2021.   There have been no changes since.

70% is diversified into Keppler’s good value (BUY rated) developed markets:  Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: China, Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.

There is one trick Pi subscribers learn about China which is different from the rest of the funds.

iShares Country ETFs make it easy to invest in each of the MSCI indices of the good value BUY markets.

For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF  that tracks the investment results of the MSCI Germany Index. The fund invests at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for every market in our Pifolio.

This year I celebrate my 53rd anniversary of writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

How you can create your own good value strategy.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special part of your course looks at how to spot value from cycles. Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.


The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Save $124.50 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking that down to $174.50 in this special offer.  Plus I am reducing annual renewals from $299 to only $99.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (PI).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.

Triple Guarantee

Enroll in Pi.  Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past five years right away, plus numerous updates over the next year. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

#2: I guarantee to send you monthly updates that are based on a study of every share in 46 stock markets around the world.  These updates will show the values, the earnings of all these markets and categorize each market as Top Value (buy), Neutral Value (hold) or Poor Value (sell)

#3:  If you are not totally happy, simply let me know. I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.:

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last five years so you can back track if you desire.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Subscribe to a Pi annual subscription for $174.50 and receive all the above.

Your subscription auto renewal will only be $99 a year from now, if you renew, but you can cancel at any time.