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Bear Markets Bring Opportunities

I hope you were able to hear Brian Wesbury, Senior Vice President and Chief Economist with First Trust Portfolios, LP in Wheaton, Illinois. Brian has been a great friend to Allen & Company for over three decades and generously given his time to come to Lakeland and speak to us at our annual Economics Forecast Breakfasts, although we do joke with him and tell him every year that traveling from Chicago to Florida in the depths of winter shouldn’t be a hard sell!

Mr. Wesbury and most of the research I have read in Q4 2021 are cautiously optimistic for the stock markets in 2022.

And what, you will likely ask, does “cautiously optimistic” mean? As that other well-known economic expert, Jedi Master Yoda, explains, “Difficult to see. Always in motion, the future is.”

I believe both Brian and Yoda are trying to tell us that we may see further upside in the 2022 market, but to a lesser degree than in 2021 and with more volatility to boot.

Short-term volatility is something most can tolerate, even embrace, but a long-term bear market is a different animal altogether. What do we do when the bear market starts to roar? Do we lose hope and panic while shouting “Sell, Sell, SELL” while running for the exits? We might, without preparation. A sound plan is excellent fun to monitor when numbers increase, but it’s an essential guide-map when storms come.

Bear markets often bring investors distress, but with the downturn comes opportunity.

The housing bubble that burst in September 2007 was a disaster for many, but it was a time when savvy investors positioned themselves for the bull that ran for the next decade-plus.

What gave some investors the courage to be buyers when so many others were sellers? How do we remain optimistic and hopeful in dark days? Planning and preparation, as always, are critical.

When times are flush, it’s best to build a “war chest,” not a second home in the mountains. We should constantly be refining that carefully thought-out plan for future monetary needs. Certainly, “moving the future is,” but we can be adaptable and flexible as challenges come along if we have a plan and a few contingencies in place. A good plan is not static. It should be updated at least annually. I, of course, ignore my advice and constantly revisit my plan because I’m a nerd and analyzing numbers is what I call “fun” or “a hobby.” Real (i.e., normal) people should revisit their plan once or twice a year or when something changes.

Remember always sharpen the saw.

Keep learning, study history, and never stop reading. Take time to read or re-read A Random Walk Down Wall Street if you haven’t lately. You’ll be better equipped to ignore those that say, “But it’s never been like this before!” They were wrong then, and they’ll be wrong the next time too. So don’t invite Chicken Little to dinner unless she’s the entrée.

Finally, stay grounded in your core values. Your purpose in life, your ethics, morals, values, beliefs are what you built all your life’s plans upon; be faithful to them. And above all, strive to enjoy the journey.

January 2022

Brian Wesbury and First Trust are separate entities from Allen & Co and LPL Financial. The economic forecasts set forth in this material may not develop as predicted.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Market references are to indices which are unmanaged and may not be invested into directly.

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