The Painful Lesson From My First Bear Market

When I started on Wall Street, we hadn't yet landed on the moon...

That was a long time ago. And I've learned a lot along the way. But the most important lesson I ever learned happened early on in my decadeslong career.

You see, I joined Shearson, Hammill in 1966...

I started learning the ropes as a broker at the Wall Street firm. I wasn't an analyst yet, but I spent as much time as I could with those folks.

As an up-and-comer with a mind for finance, the stock market was the most interesting thing in the world to me. I wanted to understand everything about how it worked.

More important, I wanted to know how to use the stock market to make money. And frankly, I picked the right time to get into the business...

I earned my license on October 7, 1966 – the exact day the bear market ended. For the first two and a half years of my career, it felt like every day was an "up day."

Life was good back then. I was 23 years old, bringing on new clients, and making great returns for them as a broker. It felt like I had life – and the markets – all figured out.

Everything went great until early 1969...

That's when the first bear market of my career reared its ugly head. It lasted nearly two years... The benchmark S&P 500 Index plunged roughly 35% over that span.

It was brutal. Instead of every day being an "up day"... they were almost all "down days."

As tough as that time was, though, it quickly taught me the most pivotal lesson of my career... I wouldn't be able to survive in this business without "something else."

I just wasn't sure what "something else" was yet.

You see, until then, I had focused on "fundamental analysis." It's what every investor used in those days.

Analysts and brokers spent their days diving into the ins and outs of companies. We came up with estimations of future business prospects and earnings... Then, we would decide if a company was cheap or expensive compared with those future prospects.

It all made sense to me at first. And as I said, it worked extremely well for the first few years... It was a bull market, after all.

But when that bear market hit, I realized I wouldn't be able to protect my clients, stay sane, or even go to sleep at night without that "something else." I needed to find something to supplement the fundamental research that my firm was doing.

That "something else" turned out to be technical analysis. It's incredible how much you can learn by taking a little time to study charts and track trends in the markets.

Even to this day, some people still think of technical analysis as some sort of "voodoo." But deep number analysis is what shaped my investment philosophy over the years...

It's also how I built the "Power Gauge" that I've shared a bit about in recent weeks. And starting tomorrow, I'd like to take some time to walk you through exactly how it all works...

You'll see that it's not voodoo at all. Instead, it's an objective way to look at any stock you would like. And most important, it's how you can quickly learn if it's time to invest... or time to walk away.

That's what I needed when my first bear market came around. And it's what I believe every individual investor needs right now.

Good investing,

Marc Chaikin

P.S. My Power Gauge is designed to show investors which stocks could soon take off by 100% to 500% or more... by predicting the future stock ratings of more than 4,000 different companies. If you missed the bottom in 2020, and you haven't doubled your money or more on some of the biggest winners of the past year, you need to see how it works – only online for a few more days. Click here for the details.

Further Reading

Individual investors need any edge available to be successful. And one of the most useful advantages you can have is top-quality data, if you want to compete with Wall Street professionals... Read more here: Do You Use the Best Data Available?

Marc has studied the markets for a long time. That’s why, after the 2008 financial crisis, he developed his Power Gauge tool to help everyday investors level the playing field with Wall Street. Check out his two-part essay here and here.

Market Notes
MORE SIGNS THAT THE ECONOMY IS GETTING BACK ON ITS FEET

Today’s chart shows good news for the U.S. economy…

Longtime readers know that we like to check in on big financial institutions. These banks make up the “financial backbone” of America. When they’re doing well, it’s because folks are borrowing and spending. Today’s company shows improvement in our financial picture…

American Express (AXP) is a $130 billion financial titan and the world’s largest payments network. And its latest earnings show that consumers are starting to get back to spending. In the most recent quarter, the company’s total revenue was down 12% year over year. But that’s mainly due to reduced demand for travel and entertainment compared with early 2020. Excluding those categories and the effects of foreign exchange rates, cardholder spending rose 11% year over year… an increase from pre-pandemic numbers. Travel and entertainment spending is starting to recover, too.

AXP shares are up around 70% over the past year. And they just hit a fresh all-time high. As the economy continues its recovery – especially once folks start taking flights and attending concerts – that trend should continue…