Bull and Bear Markets in Canada since 1956

I must thank RBC Asset Management for posting the bull/bear graph. The original post can be found HERE.

I have a friend just starting down the investment path. Her first trade was CIBC. She picked up some shares well into correction territory. CIBC was off its high by about 14%.

The worrisome thing about corrections is one never knows when a correction will continue down into bear territory; bear territory is a drop of 20% or more from its high of the past year. Riding out a bear market, even when the stock held was bought at a decent discount, can be tough for a new investor. A nasty bear can easily devour 40% of a stock's paper value. Paper losses of that magnitude play havoc with an investor's confidence and patience.

Look carefully at the chart below. Note that the good times, the bull markets, historically run longer and stronger than the intervening bear markets. Personally, I feel I have lucked out when I pick up a good, solid stock discounted by 20% or more.

As I write this Brookfield Asset Management (BAM.A) is down a full 18% from it high of the past 12 months. Is this a buying opportunity? That's an individual investor's call based on a reasoned, gut feeling. Accurately predicting the future is beyond most of us. 

Only buy stock in good, solid companies and don't invest too heavily in anyone stock—diversify—and if you can also tap into a generous dividend, as my friend did with CIBC, then you should do just fine.

Advice that rings true

Cruising about the Internet I came across the BMO Wealth Management newsletter with a link to the BMO Investment Insights. Both, I believe, are published by BMO Nesbitt Burns. I read two bit of advice that rang completely true to my financial ear.

• Don’t overlook the merits of being invested. History has shown that over longer time periods the return of the equity markets outperforms inflation.
  
• Consider keeping a budget. A budget may be especially helpful for those like young investors just starting out. It can help provide a full picture of cash inflows and outflows, and determine which costs are necessary and what adjustments can be made to deal with inflation. Remember, the official measure of inflation, the Consumer Price Index (CPI), doesn’t include such items as gasoline and groceries. These are everyday living expenses incurred by almost everyone.