Secular Bear Market Isn’t All Bad News

DENVER - Even when the long-term market trend is defined by falling inflation-adjusted prices, despite short-term ups and downs, there may be opportunities to root out profits.

In such a scenario—a secular bear market, as it’s called—there are ways to profitably allocate a portfolio, says Martin Pring of Pring Turner Capital Group who spoke at the annual conference of the National Association of Active Investment Managers on Monday.

Pring is currently only bearish on bonds. We are in the fourth stage, or season, of a six stage business cycle, according to Pring’s research. That means he’s bearish on bonds and bullish on equities and inflation hedge commodities.

On average, Pring says, stage four of a business cycle lasts six and a half months. “As you progress through a business cycle, different asset classes come into play and there are certain things you want to be exposed to.”

Pring Capital’s investment strategy focuses on business cycles which average 4-5 year spans. As the economy contracts in stage one, the model is bullish on bonds. As it moves into stage two and bottoms out, equities are purchased. As the economy turns around, commodities come into play.

The expansion of the economy dictates the exact opposite approach: selling bonds in stage four as the economy expands, then selling stocks in stage five as the expansion peaks and finally selling commodities in stage 6 when everything turns down – bearish on all three asset classes.

Pring recently teamed with AdvisorShares to put this strategy to work in an exchange traded fund, DBIZ, launched in December 2012. But if advisors choose to take a do-it-yourself approach to Pring’s strategy instead, he says advisors can use the 12-month moving average as their guide. “It’s a simplistic way of demonstrating a bull or bear market and what stage of the business cycle we’re in,” he says.

And though Pring says that having confidence in this model takes some of the subjectivity out of investing, something that is inherently emotional and subjective, he acknowledges that it is not “the holy grail.” “There are times when it doesn’t work,” he says.

Nevertheless, Pring would caution advisors about a set it and forget it strategy. “Every time you see a bear market, people start to look for something else,” Pring says. “By the time they’ve all realized ‘buy and hold’ doesn’t work work, we’ll be entering a secular bear market, that’s typically what happens.”