As two years of emergency fiscal and monetary support retreat, global growth, inflation and speculative frenzy are as well.
Individuals holding equity funds and portfolios at the most extreme valuations in a hundred years have an opportunity to consider: How did you feel and react in the 2000-2003 and 2007-09 bear markets?
Now consider that you are that much older and have less ability to wait years trying to make back losses again. Jason Zweig offers some lucid thoughts in Why you should sit out of the mayhem, Jan 25, 2022
“…the best guide to how you will behave in the next crash is how you acted in the last one. If you can’t take the pain, you should feel no shame about staying on—or moving to—the sidelines…Market panics are the indispensable hygiene of markets, the natural way overvalued assets come back into line, making future returns more attractive.
Every investor should be thankful that stocks do go down, for two reasons.
First, if stocks always went up, they would be riskless—and their returns would end up being paltry. The short-term pain of loss is the price we pay for the potential for meaningful long-term gain.
Second, if you have plenty of cash and courage to withstand further declines, other people’s fear could be your cue to act. As I wrote in 2009: “It is sometimes said that to be an intelligent investor, you must be unemotional. That isn’t true; instead, you should be inversely emotional.”
That means market declines don’t have to be a cause of consternation. They can be an opportunity.”
Upside from bear markets can be huge but only for those who preserve their capital, cash and mental strength so they can buy when others liquidate.
;
