John Schlitz Blog | Why Having A Strategy Is Critical For Surviving A Bear Market | Talkmarkets

John Schlitz is an accomplished analyst with more than 30 years on Wall Street serving institutional investors and traders. John has extensive experience analyzing U.S. equity markets and is recognized for his concise, clear and actionable analysis of stocks, sectors and the broad market. He is ... more

Why Having A Strategy Is Critical For Surviving A Bear Market

Date: Thursday, March 19, 2015 12:18 PM EST

With the Bull market more than 2200 days old, with S&P 500 earnings projections for the first-half of 2015 shrinking and with the Federal Reserve potentially raising interest rates as soon as June, investors are legitimately concerned that a long overdue market correction (i.e. 15% - 20%) might not be too far off. While there’s no sure fire way to tell, times like this warrant a disciplined approach to managing one’s portfolio.

While most advisors suggest switching into defensive areas, buying some form of downside protection, or shifting a portion of the funds into bonds (or some combination of the three), the key to weathering a market downturn is making sure the stocks in your portfolio are sound, both fundamentally and technically.

The challenge for self-directed investors is how to accomplish that task against the backdrop of limited time, resources and expertise. The answer is to incorporate a unbiased, back-tested, quantitative model that provides clear, concise analysis of a stock, group or sector. The model should not only identify when a stock needs to be removed from the portfolio, but also offer replacement candidates with healthier fundamental and technical credentials.

One of the keys to achieving positive relative performance during a significant market downturn is active portfolio management. Investors must periodically reassess stock holdings and make changes when warranted. My March 30th webinar discusses how Chaikin Analytics alerts investors to potential land mines by filtering stocks through a 20-factor quantitative model, which often exposes fundamental and/or technical weakness before a major price decline occurs. The model (which computes a Power Gauge Rating for every stock) also makes it easy to monitor an entire Industry, so that any deterioration within a stock’s peer group can be identified ahead of the curve.

The Chaikin Analytics proprietary Relative Price Strength indicator, by combining “persistence of relative performance” with traditional relative strength measures, pinpoints shifts in psychology in stocks early enough to enable investors to sell before major price declines.

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