Here's an Investing Tip From an Infamous Shakespearean Bear

Depending on your age and context, the word "bear" can carry a whole lot of different meanings. Ask a kid, and they'll probably have a favorite bear -- stuffed, of course. Some of us might think of polar bears and how they're suffering due to climate change, while hunters and nature lovers alike might both think of them as frankly awesome predators, best witnessed from a distance. And then there are the classicists, who, like David Gardner, might harken back to Shakespeare, and not a line of dialogue, but perhaps his most famous stage direction. Did the Bard bring a real bear on stage at the Globe Theater? Nobody knows.

In this Rule Breaker Investing "Great Quotes" podcast, Motley Fool co-founder David Gardner jumps from those dramatic bears to financially traumatic bears, and how smart investors should respond to them.

A full transcript follows the video.

This video was recorded on Oct. 24, 2018.

David Gardner: Great Quotation No. 1: This one comes from William Shakespeare. I bet you've heard of him. In fact, I hope you know that The Motley Fool's corporate name comes from Shakespeare. That was from Act 2, Scene 7 of As You Like It, but this time I'm going to The Winter's Tale, which is a tragicomedy.

It's really one of my favorite plays of all of Shakespeare's. It doesn't tend to get put on as often as something like Romeo and Juliet or Hamlet, but The Winter's Tale [no spoilers!] starts with a tragic few acts and then ends with a comic few acts. It's a wonderful story and one of Shakespeare's most famous stage directions is the quote that I'm pulling from The Winter's Tale and here it is: "Exit, pursued by a bear."

There's some debate as to whether in Elizabethan times they used a real bear onstage to chase Antigonus, the actor, who's exiting being pursued by a bear, or whether it was just an actor in a bear costume. And I'm sure in centuries since there's probably been a little bit of both. I, personally, would love to see a live bear onstage, but not if you're Antigonus, because Antigonus, as he gets chased off offstage, that's the last we ever see of him. He is presumed dead, presumably by that bear.

But why would I lead off with "Exit, pursued by a bear," and call that a great quotation?

Well, in a little bit of, I would say, "linguistic leisure domain," I made this an epigraph in the very first edition of The Motley Fool Investment Guide. Now, an epigraph, as you may well know, is a quotation that will lead off a chapter, or a section, or a part of a book, and I thought this is the perfect one to lead off our chapter on selling stocks and selling strategy. "Exit, pursued by a bear," because, of course, it's a wonderful pun on bear markets, which is why I wanted to talk a little bit, here, at the outset of this podcast about bear markets.

You know, most bear markets last somewhere between 12 to 18 months. They're much briefer than bull markets. Bull markets run over years. Bear markets are usually counted in months, but as I've often said in the past, stocks go down faster than they go up; and so, when bear markets strike, like a bear strikes with its paw down, stocks go down and often a lot faster than you or I would like.

And I would say, right now, here at the end of October 2018, I think we might be in a bear market.

Now, how do I conclude that? Well, I look at my own scorecard, picking stocks for Motley Fool Rule Breakers, and I look back over the last several months, and each of my picks is down and losing to the market, in some cases 20% or so. And when I see stocks lose about one-fifth of their value and it's happening fairly consistently, I start going, "Well, when did that start?"

And for me it was around mid-June, so doing quick math on my own family portfolio that I manage, I'm down about 15% from June to this week. So that's not a great performance. That's definitely a time that I wish the market hadn't done that over the last several months.

Although when I look at the S&P 500, which is a broader market measure than my family portfolio or your portfolio, I'll note that actually the market's about where it was as of June. This week, as of mid-June, it really hasn't moved. But it has surged higher than that in the meantime, and then fallen down over the last month. So those keeping score at home looking at the broad market will note that over the last 30 days, the market's down about 7% as I tape this podcast, here, on Tuesday, October 23rd.

So I think, at least for me and my style, for the Rule Breaker Investing approach, I think we're in a bear market right now. It's been lasting a few months. Some of the damage has already been done and there will probably be some more damage done. We'll see. I'm not one to make big market calls and I hope you realize that when I say that I think we're in a bear market. It doesn't change how I invest and I'm certainly not trying to alarm anyone. And I'm also just guessing, because we really never know until we look back 12 or 18 months later and say that was a bear market.

Of course, people are constantly predicting where the market will go and a lot of people thought there would be a bear market in 2013, and 2014, and 2015, and then 2016 and then 2017 and 2018. So there's always a lot of guesswork, but we really only know when "Exit, pursued by a bear" matters; once it's already happened.

So I wanted to lead off with "Exit, pursued by a bear," because I think it's a great pun for investors pulled right from my favorite playwright, William Shakespeare, and I want to point out what actually ends up happening to Antigonus when he exits pursued by a bear and, as I mentioned earlier, no spoilers really, but he'll never be seen again. And I don't think that's a great outcome for you or me as investors.

So when I see a bear, I don't exit. And I'm here to suggest that you should not exit, either, unless you're overinvested. Unless you've borrowed on margin, which you should never have done according to us here at The Motley Fool for the most part. Or, if you really did need the money for something else like a home payment or something else in the next three years.

We've always said here at Fool HQ -- we're now in our 26th year as a business of saying this -- that you as an investor should only have money in the stock market that you can afford to lose and that you won't need for three-plus years, because the next three years [any given three-year period] could be bad and I'd hate to think that you were risking money that you actually needed for something else.

Of course, we're always playing the only game that counts, here, at The Motley Fool and that is the long-term game. So "Exit, pursued by a bear" is not only a fun pun uniting Shakespeare with investing, but it's a warning to us as investors not to exit. [With] most of the bears that you see over the course of your life -- and again, if you're making a lifetime commitment to being invested in the stock market, which is, I think, one of the best decisions you can make [and history and data proves that out] -- then you'll recognize that with almost every bear you see, you should stay on stage.

Before I go to Great Quotation No. 2, I should mention that I think a lot of people, in particular in recent years, have feared a bear market because they think it could be really bad. And why is that? Well, the last couple of bear markets have historically been horrible [2008-2009 and then, of course, 2001]. Those two markets [the Great Recession and then the dot.com bomb] really saw the markets lose about half their value and in some cases more if you're counting the Nasdaq.

Great companies like Amazon -- I remember back in 2001-2002 -- went from like $95 in 2000 down to $7 at its bottom and I think in 2001 the numbers are right around there. But my point is that was a drastic drop in one of the great companies of our time, and I think it's easy to be looking in the rearview mirror and think that's what bear markets look like. But that's really not the case. So I think people are probably overrating and a little bit too afraid of the idea of the next recession or the next bear market. A thought.