In the Last Bear Market the S&P 500 lost about 50% of its value. Yes this can happen again. Your Financial Advisor will probably say things like "we are invested for the long term", "The Market over time always goes up", "It's not timing the market, it is time in the market", and he will throw around terms like "Dollar Cost Averaging".
Ask yourself this one question: Do you feel comfortable watching your Stock Portfolio decline by another 25-30%? If so, then stop reading this, pour yourself a cocktail and just relax. You may also want to avoid opening up those monthly statements.
Anyone who holds too many stocks during a Bear Market has only one thing to cling to: Hope. They hope the market goes up. They hope everything is going to be alright. The reason for this eternal hope is because their portfolios are only positioned to increase in value if the Market rises. 99.9% of Investors can only make money when Markets rise. The Dirty little secret is that Markets don't always rise, they move up, down and sideways. Uh oh.
I personally don't care what the market does. It could go up to the Heavens or drop straight to Hell, the Dow could go to 20,000 or to 2,000, and I would not lose a wink of sleep. On the Wall Street there is saying that goes "The Unsuccessful Investor is Best Friends with Hope". Rest Assured that Hope is not part of my equation.
I have endured massive pain and frustration through my own trading, this eventually created a "Moment of Clarity" where I could no longer afford to hope for what I wanted to happen. I was forced to look into the mirror and admit exactly what I saw, even if it was ugly.
My ultimate aim in Trading is to be objective. Specifically to be realistic with the circumstances that are actually happening in the Markets. Happy Trading.
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1 comment:
hey its b alps from a certain social networking site ;)
anyway...you are absolutely right.
stocks are only better in long run bc average stock PE is 15 historically which is 6%+ earnings yield while bonds yield much less. however, there rare cases (bear markets) when earnings are in free fall and will DECLINE, then you need to flee stocks for bonds...until earnings start stabilizing, stay aaway from stocks (as a group..not individual ones)
I find it dumb as well that everyone has to be fully invested...The markket is still overvalued now, so why buy now. what is wrong with being all cash...and getting automatic 3-4% annually as opposed to losing a lot.
If the S&P gets cut in half you need a double just to break even....if you waited out and were in cash and only lost 10%....after you get a double you're up 80%....Ray you did a good job of pointing out how you cannot listen to advisers who are biased towards owning stocks.
now if only we got another huge rally to short off of :)
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