Well, if you haven't already heard, yesterday the S&P/ASX 200 Index (ASX: XJO) officially entered into what's known as a 'bear market'. It's a significant (although rather arbitrary) milestone for a market that was charging towards new record highs just three weeks ago.
You might be wondering why yesterday's 3.6% drop for the ASX 200 is so different from the week of falls (sometimes higher than 3.6%) and red ink we endured last week.
A bear market is when the stock market experiences a fall greater than 20% from its last record high. Until yesterday, we were merely in 'correction' territory (a drop of 10% or more).
The relentless selling pressures resulting from the ongoing catastrophe of the coronavirus have now tipped the ASX 200 from a bull market into a bear market.
What does a bear market mean for ASX investors?
Well, nothing really changes for investors in a practical sense, but we do seem to love our labels on the share market and so here we are. It's possible that this declaration will have a negative effect on market sentiment in the short term, but bear markets do tend to last a few weeks or months (they are only broken by the previous record high being passed), so this may pass.
It's a trying time for investors all the same. ASX blue-chip shares that were pushing record highs last month are now seeing months of gains wiped out. Most of the ASX banks are trading at multi-year lows and the ASX 200 has now wiped out all of last year's bumper year of gains (and then some).
How should we invest in ASX 200 shares then?
If you had a 2020 resolution for your share portfolio, it's probably best not to make any changes at all to your strategy, even though you might be seeing some nasty paper losses right now.
History tells us that selling some or all of your shares in a bear market is a terrible idea that usually results in permanent wealth destruction.
Conversely, history also tells us that it's the best time to be buying shares. Warren Buffett likes to say that bear markets are like a supermarket having a store-wide sale – yet everyone is trying to stampede out of the shop!
Since Buffett has done most of his past buying during times like these (and is worth over US$80 billion), I think it's good advice to heed!
