A bear market by definition is a decline in the S&P 500 Index from the peak to the trough of the market close of 20% or more. There have been 13 such declines since the end of World War II, 14 if you include the period from April 29 to October 3 in 2011, when the S&P went down 19.4%. Something, somehow, somewhere will cause the next one and since Larry opened this firm in 1980, we have witnessed almost every possible reaction to many of those bear markets. Here are our top ten:
- All three major networks will begin their newscasts with scary drums beating in the background, a big red arrow pointing downward and headlines that include crash, freefall and meltdown.
- You will feel like the selling will never come to an end.
- Investors will make short-term decisions with long-term capital at stake.
- Someone will become a hero. A resident “doomsayer” will get lucky and call the correction perfectly this time, even though his or her last 30 attempts were wrong. It will lead to TV appearances, speaking gigs and maybe a book deal.
- You will let us know that you are not a “spring chicken” anymore and you won’t have time to recover like you used to.
- You will trick yourself into believing that you should have seen it coming.
- You will trick yourself into thinking we should have seen it coming.
- We will start seeing ads again for investing in gold and other precious metals.
- You will say the 4 most dangerous words that can derail any long-term retirement plan: “This time it’s different.” You might hear our four-word response to those words: “This too shall pass.”
- Larry will get on the radio again with Mike Collins. He will repeat my most favorite thing I have heard him say about bear markets, which is “It’s never as bad as it looks at the bottom and it’s never as good as it looks at the top. When it gets bad enough that you want to throw a brick through my window, wrap a check around it because that will be the best time to invest new money.”
Being an equity investor, understanding that corrections are a fact of life is helpful for setting realistic expectations, but statistics don’t matter when stocks are falling. We can show you every chart and table in the history of the stock market to help ease your pain, but it may not matter once your emotions take over. The only thing that matters is how you choose to react as an investor. General Dwight D. Eisenhower’s assessment of a military genius can be a great lesson for us all: “The man who can do the average thing when everyone else around him is losing his mind.”
From the desk of Mark Dillon, CFP®
This article was featured in our Summer 2018 Quarterly Newsletter.Investing & Saving, Market Volatility