Some Bear Facts

April 07, 2020

As the Covid-19 outbreak continues, Waddell & Reed has decided to extend the closure of the Oak Brook, IL office through April 30, 2020. For most of us, what we are living through right now are overwhelming circumstances, unlike anything we have experienced during our lifetimes. Our first and foremost concern is for your health and safety. This means following the directives to shelter in our homes and to avoid unnecessary contact with others. We will continue to work from our homes while striving to provide you with all the support you need to make sound financial decisions.

We understand that this is not an easy time to be an investor. Living through a bear market is never fun, but they have always eventually ended. There are a few things we want you to remember that can help you get through this bear market and hopefully positioned the recovery we believe will come.

It may help us to imagine ourselves out for a hike on gorgeous spring day. The dogwood and azaleas are in full bloom, birds are singing and the sun is shining its dappled light through the canopy of green leaves overhead. We are taking in deep breaths of fresh mountain air and life is just about as good as it can be. Suddenly, we look ahead and see a bear on the path. Our body immediately responds with the Fight or Flight response, which is a reaction to a perceived danger. Cortisol, which is the body’s main stress hormone and nature’s built in alarm system, floods our body. This happens unconsciously and very rapidly as our body prepares us to fight the bear or run away from it. But wait a minute! If we can calm down enough to access the prefrontal cortex of our brain, we might be able to remember that the bear has the advantages of strength and size if we try to fight it, and that a bear can run as fast as a horse, so we won’t be able to outrun it. If we prepared ourselves before our hike by learning what to do if we meet a bear, we might be able to recall that we need to remain calm and still, and stand our ground. Bears do not want to attack you; they usually want to be left alone.

We think this is also good advice for when we encounter a bear market. None of us would necessarily choose to experience a bear market, but we can choose how we will respond. Our bodies will automatically enter the Fight or Flight response when we experience a perceived danger. We can overcome this response by remaining calm, by remembering that we invest for long term goals, and that historically stocks have provided higher returns over longer periods of time when compared with other asset classes. Peter Lynch, one of the great money managers of the 1980’s observed, “More money has been lost by trying to avoid bear markets than by going through a bear market. The important thing about stocks is not to get scared out of them.” Many times the things we do during a bear market may be counter- productive to our long term goals, especially if we decide that we should sell during a bear market when prices are down. Even if your intention is to buy stocks later when the market recovers, you may be getting back into stocks after most of the recovery has taken place. Standing our ground means staying the course with the investment process and asset allocation that has the most potential to help us pursue our financial goals.

It also helps to remember that bear markets can provide opportunities for us to add to our investment accounts at lower prices. If you can afford to add to your retirement plans or other investment accounts, this may be one of the best times in recent years to do so. We may be able to harvest tax losses by repositioning securities which have gone down in value due to the bear market, a strategy that has potential of reducing the taxes you may owe. If you were age 70 ½ or older in 2019, you will not be required to take the required minimum distribution in 2020. You may want to consider whether you need to take this distribution, and if you can reduce or suspend it this year, that may also help your account recover more quickly.

Finally, not all bears are scary. In the Sunday, March 29, 2020 Chicago Tribune, an editorial appeared which asked readers “if they had been on a bear hunt yet? A teddy bear hunt, that is. Start looking closely at your neighbors’ windows and you’ll probably spot a bear or two. Inspired by the 1989 children’s book “We’re Going on a Bear Hunt,” by Michael Rosen and Helen Oxenbury, and the human need to connect during mandatory social distancing and stay-at-home orders, people around the world have been placing teddy bears in their windows as a symbol of solidarity during the coronavirus pandemic. Families craving fresh air and a chance to stretch go on bear hunts, tallying up the bears they find on neighborhood walks or drives.” So dig out your favorite teddy bear and place him in your front window. This is a good reminder that bears can be cuddly, that we are all in this together, and that we can persevere through these tough times by sharing a bit of what makes us most human – the ability to connect to each other in heartfelt ways.

One of the suggestions for getting through these challenging days is to make a gratitude journal, a list of all the things that make us feel grateful. On our gratitude list is each of you. This is a time when we especially appreciate all the men and women who allow us to shelter at home. These are the doctors, nurses and medical workers who are in the front lines of the battle to overcome the coronavirus. These are the school teachers providing lesson plans remotely to their students, the police officers, firefighters, paramedics, EMTs and all first responders. These are the people who work in grocery stores, pharmacies, gas stations and other essential businesses. These are the delivery people who are bring us our groceries, our packages, our meals and our mail. These are people who are selflessly putting their own lives on the line so that the rest of us can shelter in our homes. We know that many of you and your loved ones are part of these heroic and selfless people. We can never thank you enough for everything you are doing to get us through these days. You are our heroes!

We care about each of you and want to help you as much as we can. Please let us know how you are doing and how we can help. Be strong and courageous! And give your favorite bear a cuddle!



Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.

This is not meant as investment or financial advice or a specific recommendation of any kind. Opinions and forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results could differ materially from those anticipated. Please consult your financial advisor before making financial decisions.

Waddell & Reed is not affiliated with Peter Lynch.Waddell & Reed and its representatives do not provide tax advice. Please contact your tax advisor concerning your particular situation.