Humans are woefully ill-equipped to navigate capital markets. The carnage is repeatedly predictable and grisly.
Our nature is hardwired for mental errors when it comes to markets and money. To over-ride innate presets and succeed through secular cycles, we have to train ourselves to think and approach the task opposite to the masses. And still, knowing, or saying this, is not nearly the same as developing a rule set and exercising the tenacity to stick it. A challenge made harder in modern times, by the relentless psychological barrage of the media commanding financial sales force.
“Stand for something or you will fall for anything,” was a timeless quote from my high school biology teacher. In financial management, I have found these words to be bedrock.
The next savage bear market decline for stocks is indelibly inked on today’s euphoric, reckless valuations. But participants either don’t see the writing or are thinking they will get out before losses hit once more. Most won’t. Like frogs boiling in pots of water, losses move slowly and then all at once.
The charts below of the S&P movements during the bears of 2000 to 2003 and 2007 to 2009 are instructive and outline the seductive demise that imploded trillions the last 2 down cycles. Words for the wise: “do something today, that your future self will thank you for.” See: The slow and perilous death of bear markets, for more.