Okay, now we're going to talk about bear markets. bear markets basically when the stock market goes down, there's our historical usually you get a bear market every few years. The time of this recording in January 2018, we haven't really had a bear market which define is a 10% or greater dip and closed eight years. So we're way overdue for a bear market. Part of the problem is why we haven't received the market is all the money from the tarp that was put into the system. When Obama took office from George Bush they put the money backdrop in to keep the banks from failing and that in turn, prop the stocks up, which they've been feeding off ever since.

But the usual the phrase the trees don't grow to the sky. Eventually we will, this matter won't get a bear market when stocks do go down. So some of the things you want to keep in mind is stocks drop faster than a rise. Here's a phrase where you climb the wall worry upstairs with the bull in a rising market. But when you hit a bear market, the bear literally jumps out the window, they do drop, I'm going to drop they're extremely fast. There's different ways to guard against that.

And we're going to get into that. We mentioned briefly about how the printing of the money is kept, basically the market propped up the last eight years. So as the printing press comes down, this should lead inflation starts to heat up and lending rates go up. This should eventually lead to a bear market or stocks. People want to cash out in stocks and money out of the market. The big thing, keep ion is devaluation on the currency and trade wars, international trade wars, because as one country will devalue their currency and make goods cheaper, that's the attract more business that forces the other countries to do as well.

And if you get into a devaluation of currency, it's similar to the Great Depression in the 1930s. Where people just don't want to spend money, goods and services go down. And then there's a race to the bottom on how cheap you can cut prices. So devaluation of the currency is never a good thing. trade wars are usually a terrible thing. As far as the stock market is concerned, fear and greed.

Stocks are running well. That's the greed factor. Everybody wants in is what they call the fear of missing out. This is usually the worst Time to invest. That's why we look at the P e ratios price to sales price to book on the overall market. Right now it's overstretched.

So we have a high greed factor, the foreign markets, they're still recovering. So they haven't reached this greed yet. And that's why I feel personally we should put more and more money aside in foreign markets. Fear is when you have a straight crash in the market. And when the market goes down, and everybody's afraid to invest, and usually you'll see this in the media because this will be talked about fear of investing. That's the best time to have cash to get the best deals in the market.

Now some hedges, we talked about options earlier covered calls and puts, puts. If you were to buy a straight put on a stock that you own, you're actually protecting it against going down because if the stock goes down, you can force The buyer, which is you can force the seller to take that stock at that particular price. So if I have a stock that I bought at $20, and went up to $40, I could put a put at 40. buy insurance. And that way, the stock drops down to 20. Again, or 30 or 10. in that timeframe, I have the right to put that stock to somebody else with the $40 price. But of course it cost money for puts.

You can also do covered calls where you take a stock that's you feel this not gonna rise much more. You ride a call option because you own the stock against it, collect the premium. If the stock goes down a little you neutralize the drop in stock price, the stock stays the same. You get to keep that premium so the stock goes down or stays the same. You get to keep the premium downside of a covered call, we talked about this earlier, if the stock rises even higher, they take away the stock from you so you lose out on potential gain. And the biggest problem with the cover call is that that happened to me before is if you write a covered call, and the stock for whatever reason, drops a lot in price, you can't get out of that call.

Basically, you have to be basically stuck unless you buy the call back. And that costs you money to get out of that position and then the stock is not worth nearly as much and you have to wait for it to come back. That's why I like writing calls or selling calls, writing songs. And selling puts on stocks I don't mind owning usually value socks, usually the dogs of the Dow type stocks, usually big dividend payers and very stable blue chip companies. Because the chances of a stock falling here is nullified quite a bit because they just don't fall that much. Historically, of course you can look at companies like GE, General Electric that's gone down over the last so many years.

So call would not be that great with that as the stock went down. But most stocks in general don't go down that much. And usually you can correct or collect a premium course in a big bear market. That cover call will leave you stuck. Same with selling puts. So the bear market can anyone insure your stocks by either doing cover calls on them, if you don't think they're gonna drop much, or if you're worried about a massive drop to a put on it, where you actually buy the put.

And on these when you buy puts, you always want to go out several months up to a year or two. When you do it Two option plays are usually called leaps, long term equity plays as with leap stand for and you can actually buy out covered calls and puts really that far out. But covered calls in general because you're selling you want a short position 30 days or less puts if you're selling you want 30 days or less. But if you're a buyer of a put for insurance you want as far out as possible, he or more. That's how you can protect against it spreads really complicated. I'm gonna have to put together a course on this.

But in essence, you can sell a put turn around and buy a call that's called a spread to protect yourself or you can buy a put and turn around and sell a call. And again, you're protecting yourself. So there's spreads credit spreads, what they call bull put spreads bull call spread Bear call spread bear. credit spread, there's also calendar spreads. And there's callers so if the stock moves in either direction you make profit. spreads are good because they can limit your downside quite a bit.

But because you're usually buying two more options to protect against either massive up or massive down, moves in the stock, it does cost you more money. So limit your profits. Put spreads are an option. Finally, inverse funds and ETFs ETFs, meaning inverse ETFs as well. This is a good way to hedge the bear markets. So if you're doing your dogs to the Dow strategy, if you want to hedge as you make profits, you can slowly build positions in inverse funds.

If the market goes down the inverse funds go up. Same with inverse ETFs. Now, one thing to keep in mind on inverse funds and ETFs, he can get him at one times leverage two times leverage three times leverage, and now they got some new ones at four times leverage. The problem at two or more times leverage is what they call the tracking error. Meaning that if, for instance, I get a dow ETF that's inverse. If the Dow goes down a certain percentage, one day, that inverse ETF should go up the same amount the same day, the difference in what it should do on paper and what it does in real life is called tracking and tracking error because those a little bit of error a little bit of slippage where it doesn't quite match.

When you do two, three or even four times those levels, the tracking error can become huge. So for practical purposes, if you Do antifa leveraged funds, inverse funds, especially their leverage, you should use them only as trading vehicles very short for intraday trading, or day to day trading and maybe hold it no longer than a week because of the tracking error. It's not uncommon. And you could see examples of those are person bought an inverse Fund, the market dropped, the fund went up, and yet the person lost money over the long term because of that tracking error. So something to keep in mind. So I like to do inverse funds that have no tracking her minimal tracking errors and no leverage.

Here's some ETFs. For instance, this pro shares shorts the sp 500 s&p 500 goes down. This fund goes up in value, and that's what they mean by shorting. shorting is you're betting the stock is going down. You could individually short stocks yourself But I never recommend it because you have to borrow the stock from somebody else through a brokerage, you have to pay a holding costs while you bar it, you have to eventually return it. if the market goes down and that stock goes down you made money but as the market or that stock goes up, you can lose money.

And the worst part there is no cap. In other words, if the stock overnight goes to the moon, you can be wiped out. So shorting individual stocks I don't like her either short sectors or the total market like the s&p 500. Here we short the qq Q's This is another ETF. This one shorts, the Russell the top 2000 stocks and Russell index. The dog which I liked using shorts, just the Dow stocks and then we get into gold miners different ETFs for equity there.

Basically, there's inverse ETFs. And there's actual mutual funds that do the same thing. And just about anything you can find so you can easily find all this stuff on Google. I just gave you a sample here. Here's a three time share for the daily s&p biotech there. So here they're betting, biotech goes down.

This particular ETF will go up in value, but again, because of leverage and tracking error, it may end up costing you more money. We have here, oil and gas, the mid cap 400. The small cap 600 the NASDAQ short here, China here. So do you use any of these please explore them and be aware of what you're purchasing before you buy it. Also, I will always plug these into my TD Ameritrade account just to see what their top 10 holdings are. And they kind of gives me an idea of what I'm looking at if I was to purchase that, is that the ETF, or the fun, that's going to short the market.

Other ways you can battle a declining market. Go to the foreign markets, usually the American markets going down, some foreign markets will go down but others will go up, find the ones that have been showing some signs of strength and put more of your money to work. And then same with sectors, the US sectors. We have different sectors oil and gas financials, bank stocks, energy sectors, telecommunication so and so forth. I try to find sectors that are beaten up over a long period of time that are finally starting to turn around and start investing in them. And that's really the secret to contrarian investing is to find markets and sectors that are beaten up for a long period of time.

Years. Usually, they're slowly turning around sorry, in this show profit, that's when you want to start investing. And as a smart money leaves the overvalued market, they usually end up in these places. Hot hands is momentum trading, this is where you want to avoid. Usually hot hands means at the end of each year, you look at the hottest sectors in the market. And those sectors, a lot of times will start to fade away, sometimes the last another year.

Hence the hot hands. In other words, the top sector of this year next year, can probably go up even more in value. But over the next several years will actually decline as money moves out because it becomes too expensive. So you want to look at areas that are gone from hot Hands that depressed starting to show a profit either in the foreign markets or sectors. Crisis investing, it's a great way investing. Media daily tells you about the market.

The media becomes very enthusiastic about the market, that's usually a sign of a top or getting close to the top. The media talks about the market or an area the market has beaten up that nobody wants to invest in. That's usually the time to buy. Same with magazines. My famous quote was, if your company that you own shares in shows up on a magazine cover fans The best thing since sliced bread and means it's overvalued, your stocks gonna go down that actually happened to me in the past. So I like looking at magazines.

Currently the covers to see what areas to avoid for certain stocks and also for the most beaten up areas. For instance, the media And magazines and the pundants years ago, when British Petroleum had their big crisis with their oil disaster, the stock was written off as dead, and everybody thought the company is going to go bankrupt. Well, that would have been the perfect time to invest because that company is come back so much higher now over the years. So you can always go on a computer, go to the library, look up old magazine covers and see what was popular then that's out of favor now as possible areas to invest pundants on the radio, you know, we all have our favorites. You can also see where the current market thinking is where to invest or not invest. I find the pundits on TV tend to tell you want to get in when it's the worst possible time where the podcasts Stock shows seem to have a better track record.

My favorite study was on Jim Cramer. Somebody did the research and found that he bought every stock he recommended not to buy usually made money and vice versa every stock that he said to buy, he lost money. And the reason why is because he had such a huge following the moment he said buy, if he didn't buy it within 30 seconds of that comment, he missed the market by time he got in by the end of the day, stock popped up and you already lost money. Spread your wealth into non correlated investments. We talked about this. For example, real real estate you own rental property that functions differently than the stock market.

So you own your own business, the same thing usually doesn't correlate with the stock market. In the market rates. Real estate investment trusts they usually run different cycle through compared to regular stocks. Right now they're out of favor. They've been taking it on the chin. I like buying into them.

I buy some individual ones. I've also buying some index funds through Vanguard to get that total exposure to Reed's bonds. For the last eight years at the s&p 500 have been going great gangbusters. They've been doing terrible, and they still are. So if you do buy bonds, you want to buy the short term duration bonds, one year, 30 days, 90 days. You don't want to go out more than three years or five years, especially the 10 year the third year.

You don't want to tie up your money because if you do, bonds will eventually come back rebound go up and you're gonna lose money stuck with the old bonds. A gold usually runs opposite to the markets. Gold has been taken on the chin the same with the miners gold miners. I've been buying ETFs Slowly into it because it's a good counter when the market full falls usually gold goes up. Same with foreign same with small mid cap US stocks. I like to buy these because usually these are out of favor like they are currently everybody's into large cap the big guys.

So you buy the big white sectors, the small mid cap us and also the big white sector foreign markets either through funds and or ETFs. One other comment on Bitcoin, which I left out, that's the latest, same with marijuana stocks. To me, they're still talked about they're in a bubble. Everybody wants and and it's going to crash. I would just wait for the crash see what survives after the crash get involved at rock bottom prices. Right now.

Again, if you looked at Media, magazine opponents, that's all they talk about. And that's the best time to avoid those particulars of the market. Forever portfolio is, you know, your goal in life when we talked about Warren Buffett and talked about be happy with a 10% or better return is basically staying with inflation or even slightly ahead. In one way, if you were to retire tomorrow, he had millions of dollars in the market and you're worried about the market going down, because you do the forever portfolio where you put equal amounts in cash, equal amounts in stocks, bonds, and gold because on. And these could be using wide index funds, wide sector ETFs total market index, total bond index, that kind of stuff. The reason why you do this is because you just want to stay equal with inflation and you don't want to lose money.

So if cash went down, one Stocks go up. Stocks go down, bonds go up, gold goes up and stocks go down, so on and so forth. So it's just to stay equal with inflation. That's known as the forever portfolio.