Gary Shilling: Bear Market Won't Leave Till Investors Heave
What about the traditional guidance, popular with financial advisors, that investors should buy and hold for the long term and avoid panicking when stocks slide?
“The reality is that if people really followed that it’s not a bad strategy, but they don’t. They panic at the bottom and then they don’t get back into stocks until the next bull market is well advanced,” Shilling said. “Equity mutual funds do better than the investors in those funds. Why? Because the investors sell at the bottom and don’t buy until the recovery is well advanced.”
If people don’t want to lose money, they shouldn’t be in stocks now, Shilling said, adding that history shows most investors aren’t in the market for the long term. “If people really stuck to it, it would be fine,” he said.
Shilling suggested investors “take some oney off the table,” take some losses and “have a heavy cash position.” His firm has taken a “risk-off” stance — long the U.S. dollar and short stocks — “and our portfolios are doing very well as a result,” he said. “Selling short is not anti-patriotic, I assure you, but a lot of people think it is.”
Shilling recommended that investors imagine their portfolios going down another 10% or 20%. “Try to envision what you would feel like if you had that kind of losses,” he said.
Money market funds and Treasury bills don’t make much money but don’t lose any either in nominal terms, he said, noting that these cash parking spots do lose in real terms because of high inflation.
I bonds, a U.S. savings bond designed to protect investors from inflation, are a great idea in theory, Shilling said, but he said his efforts, through an in-house accountant, to purchase I bonds for himself and his children have repeatedly been stymied by difficulties on the government’s website.
(CNBC, noting investors’ frustrations with the nearly 20-year-old TreasuryDirect site, which one financial planner compared to the DMV, recently reported that the platform is being overhauled to improve user experience.)
