Bear Markets: Everything You Wanted to Know, but Were Afraid to Ask

What is a bear market? Why is this one different, and what should we expect? In an exclusive interview, financial expert and best-selling author Michael Sincere shares key insights on bear markets. Listen to the full interview on our podcast or read the summary here.

Born into a family of stockbrokers, Michael grew up with the stock market and bought his first stock at eight years old. He claims to have “made pretty much every mistake you could possibly make in the market” and, through his decades of experience as a trader, knows the best strategies for investing in different types of markets. Michael actually predicted the current bear market and reveals in this interview the signs that tipped him off. He also shares his predictions on how severe the bear market will be, and how long it could last.

Michael has written a number of books about trading and investment, including Predicting the Next Bull or Bear Market and Win and Prepare Now and Survive the Coming Bear Market, as well as his two newest books, Understanding Stocks and How to Profit in the Stock Market. 

So first off, what is a bear market? 

The technical definition is that it’s 20% lower than its recent high, but people feel a lot more pain before then. 

What are the key indicators we should pay attention to in order to predict a bear market? 

Bear markets are hard to predict. One clue is over-exuberance, where the market reaches extreme highs, to a level that no one can believe. We use indicators, oscillators, and clues. There’s the Relative Strength Index (RSI), and when that reaches a very high level – which it did before this bear market hit, it hit extreme levels – that was a clue that something was going to happen. 

The other thing is psychological. Everyone’s in the market, everyone loves the market, and everyone seems to be making money in the market. That’s a red flag. 

Did you see the current market downturn coming? 

Yes. First of all, I have to be honest that I was a little early. I actually saw the over-exuberance and craziness in the stock market, where stocks that were really not that strong were being bought up at extreme levels. I was a couple of years early and so I was cautious. But right before this latest downturn, I did see it. I was actually writing my two books and I included a whole section on bear markets because I knew it was coming. 

The main clue was the over-exuberance getting to extreme levels. You can’t time it, though. I mean, I could not predict when it was going to happen, I just knew it was coming very soon, which is why I told most of my acquaintances to move to cash at that time. 

Was there anything specific that tipped you off? 

Crypto was going to extreme levels. The real estate market in the States and Europe was getting to extreme levels. And the stock market was being bid up to these just crazy – what I would call crazy – levels. 

But the indicators are what I really rely on. The RSI is a good one and there are others, but I like that one. Also, there’s something called the VIX, and it was at extreme lows, I mean, historic lows. 

The stock market is really about clues. There’s nobody ringing a bell at the top or the bottom. You just have to look at the clues, and no one can ever time it perfectly. But the clues told you there was trouble ahead. 

What’s your view of the current market situation? Are we in a bear market right now? 

Well, it sure seems like it. From what I hear from my neighbors, we’re definitely in a bear market! The NASDAQ is in a bear market officially, and it has been for a while. So that means the technology stocks have been in a bear market. The S&P 500, which a lot of people all over the world follow, hit lows of 20% and then bounced back. Now, technically you could say, ‘Oh, we’re not in a bear market.’ But we are. I mean, we’re so close to that 20%. So in my opinion, yes, we are in a bear market. 

How does the current market situation compare to previous downturns? 

My first bear market was when we seemed to be doing so well in our family. And my father said, ‘You have to turn off the lights.’ So, all of a sudden, we went from feast to famine. 

Every bear market is different. I remember that the 2000 bear market was just extreme levels that were unbelievable. And it really crashed after that. That was fueled by the Internet crash. In 2008, it was the real estate market that caused it. 

In this one, first of all, what’s happening is we’re kind of going into a recessionary period and they’re raising rates at the same time. This was caused by over-exuberance, and then the real estate market getting way too high to extreme levels, and now they’re trying to control inflation by raising rates. 

As every bear market is different, I don’t know how this will exactly play out and how long it will be. But I can tell you this is a vicious one because we’ve gone on for 13 years in a bull market and that is really an unbelievably long period of time. So, unfortunately, because we did have a 13-year bull market, this bear market could be a vicious one. It could last longer than many people think. 

Would you say that we were due for a market correction? 

Well, no one likes bear markets. They’re never fun. They cause a lot of pain. And a lot of people I know have experienced some, and I’ve seen friends and acquaintances lose tons of money, so I can’t say it’s a good thing. Is it expected? Yes. It’s part of the market cycle where you just can’t have a market going up forever. It just doesn’t happen. This is just part of the normal economic cycle and part of the stock market cycle. There always is a bear market, it always happens. We never know how long they will last and it’s just normal.  

I wasn’t surprised by it. I was only surprised that the bull market lasted so long. I expected that to end a while back. And if they had raised rates or not kept the interest rates so low for so long, we might have had a milder bear market. I think this one’s going to be a rough one. 

What are your top tips for investing successfully in a bear market? Is it possible to get rich in a bear market? 

Yes, there are people who can make money in a bear market. 

Diversification is really the key to success as an investor. Be in a little crypto, be in stocks, spread out your risk. The biggest mistake people make is they put everything in one asset. For instance, if you put everything in technology stocks, you are feeling tremendous pain right now because you’re down 50-60%. So, spread it out. But this is going to surprise some people. 

One of the ways to get through a bear market is dollar cost averaging. And that means putting in a set amount of money every month. It varies on how much money you want to put in. It can be as low as $100 or whatever you feel like you’re comfortable with. And then as the market is going down, you’re buying more and more as it goes down. The idea is eventually the bear market ends, it turns around, and you’ll never know when that happens, when that timing is. And then those assets that you bought at lower prices should do very well. That’s a long-term investment strategy that has really worked and it works during bear markets. 

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Listen to the full conversation with Michael on our podcast to learn about the eight stages of a bear market, how different asset types behave in bear markets, and how Michael believes the current market situation will end. 

Want to get more insights from Michael? You can find Michael on his blog, where he regularly posts about the financial markets, his website, and of course, his books.