Bear Market

History says that we are in a bear market (We originally posted this page in January 2006 when no one suspected that we were still in a bear market)

The excesses of a 20 year bull market were not wiped away completely from 2000 to 2002. More pain is likely ahead of us
Real Estate which has accounted for a large part of the GDP growth is slowing down
Mortgage equity extractions are slowing down
There is no real wage growth
Earnings have begun to cool
401k cash infusions have largely already taken place
Equity premiums over bonds or cash have been exaggerated and will revert to normal levels

Bear markets are characterized by both staggering rallies and staggering declines. Ultimately, however, the market goes nowhere or goes down. The below graph of the markets from 1966 to 1982.

Source: Rydex Funds and Realmoney.com

Although the market during this time period was down by about 20%, there was tremendous opportunity for profit potential! A Bull market approach would have lost money. A bear market approach would have had staggering losses from 1970 to 1973. Only an approach that went long during the upswings and short during the downswings would have made money. In fact it would have been wildly successful. Is your portfolio prepared for such a market?

Disciplined ETF Trading was founded by a Berkeley Ph.D. who began his modeling in 1994. The model has beaten a buy and hold approach to investing by utilizing sector ETFs.

The model profits for this year have been outstanding as shown in the graph below:

The annualized performance is 62% using margin, 32% with no margin while a buy and hold approach to the Nasdaq 100 yielded -12% annualized.

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