Real Estate,  Stock Market

What to do in a Bear Market (Part 1)

Reading Time: 5 Minutes

(Voice on screen)

“He turns, he shoots, he scores!!! GOOOOOAAAAAALLLLL”.

“YEAH BABY!!!”

A voice in front of the TV yells.

It is a young man, his face flushed, his voice hoarse – the excitement and relief is palpable.

Suddenly, the young man turns…

Oh, hi there folks – excuse the outburst, been meaning to play some good ol fashioned FIFA for a while now. NEED a break OKAY, deserve it.

Image result for fifa 93
Why… why are they wearing diapers?

Sigh, but since you’re here, I know what it is you’re after… the latest in The Frugal Samurai right?

(Looks at the TV forlornly, where a soccer game is paused mid-way through the second half).

No, no don’t leave… since you’re here, let’s get to it shall we!

First off have to say I am eternally grateful for everyone for their long-time readership of this blog.

I hope you are enjoying it and for anyone who’s stumbled upon this on the inter-webs, I hope you stay and join the many others (fans, followers, devotees, slav… DANCE SLAVE DANCE!!! Sorry, sorry got carried away there) who continue to read and follow my posts.

Means a lot to me that people think there is some value in what I say, contrary to MrsFrugalSamurai’s belief, but WHAT WOULD YOU KNOW WOMAN, is not what I said to her earlier.

Secondly please keep those topics and questions coming through, REALLY appreciate it, honestly – blogging is not as easy as it looks.

I think for the majority of us who post (somewhat regularly), the biggest issue is to always provide good content. Sooner or later you run the risk of going stale or running out of topics to blog about.

I am fortunate in that I have a fair bit of topics stored and ready to go but want to hear what’s important to you!

Which speaking of, today’s post is one asked from my friend Light Beam – he who works in the Treasury department of our federal government.

Light Beam asks:

“Hey, are you coming to the board game party on Saturday? Maybe a bit of Articulate, some Ticket to Ride, maybe even Monopo…”

Oops, wrong conversation.

Here’s the right one.

“Blog on how to survive an investment bear market pls”.

Haha, bears, I love bears – especially cute Teddy Bea…

Geez, what’s with me today…

HOW TO SURVIVE BEARS (market)

Image result for bear market
Probably just keep on overfeeding it until it keels over from high cholesterol?

Step 1: Don’t panic (and shut out the noise)

When a big, hulking, angry bear comes along – the worst thing you can do is to panic, feel overwhelmed and run away (sell everything).

But CAUTION!

It is commonly accepted that stocks go down x3 faster than they move up, due to a multitude of factors but most impacted by behavioural finance and risk aversion – that is studies have shown that portray us humans, through evolution, we feel twice as much sadness and pain when something is lost than when an equivalent value is gained.

This is genetically passed through the millenniums when our earliest ancestors had to fight tooth and nail over retaining whatever scarce resources that were available in a big, bad, hungry world.

So when a bear market does eventuate and you’re caught up in one – acknowledge it, face it and (try to) rationalize.

If you sell out now, you’ll most probably be selling low and buying back in at a higher price.

This is especially true when the media loves splashing front-page headlines sensationalizing the market drops.

I distinctly remember during the GFC reading via Facebook a forwarded media link from a young lady whom I “appreciated” – who at the time, was working on the equities desk of an institutional bank.

Editor’s comment: I wonder what happened to her? Is she happy? Is she safe? Did she live her life to the fullest? So many questions, so little time (we are no longer Facebook friends – such is life).

Anyway, enough nostalgia… the article I read went something along the lines of:

IS THIS THE END OF CAPITALISM?

Related image
Look MA, a mushroom!

In it, the author penned a fantastic argument that the free market world of early 2009 we were living in was about to come to an end.

I don’t remember the exact wording but the gist was to sell everything, stock up on canned tuna and mung beans and ACTUALLY TALK TO THAT YOUNG LADY WORKING ON THE EQUITIES DESK, so near yet so far… or something like that alright – my memory is hazy at times.

Needless to say, this article caused a bit of a sensation, akin to as if the economic maelstrom wasn’t burning strong enough, here’s a bit more tinder (the flammable wood not the sexting app) to burn it stronger.

Of course, in hindsight, that was the best time to buy.

So now, I don’t read the mainstream news anymore – unless front page sensationalist headlines about the world ending make their appearances again, in which case I WILL be buying.

Step 2: Think, (wo)man, THINK

Once you’ve faced reality, the key is to calm down and THINK.

I mean, bear markets are scary, trust me – I’ve been through one myself during the GFC (read here), lost a stack of money but gained some valuable insights.

Image result for bear market
Lesson 1 – If a bear wants to go through your camping gear. Let it.

One of the major mistakes I made was that I did not stop and really think HOW the investments I made were affected.

The shares of that funeral operator with virtual monopoly over the market? SELL – cos yknow, somehow people will stop dying during bear markets right?

The shares of that healthcare operator with a patent over a ground-breaking technology to be introduced worldwide? GET OUT – people will stop being sick during bear markets right?

That no-name miner in the middle of nowhere unable to secure any financing for it’s projects? HOLD – it’s so cheap, it’ll come good, our lotto ticket baby!

The off-shore property developer close to breaching its debt covenants? HOLD – people will always need more housing right? (Right, but not right during a housing-related financial crisis).

If you can hold your nerve and think it through properly, apply a bit of common sense and really think through your investments, you’ll see that investing is actually just a game. One in which most people think is too hard to win…

~~~

Speaking of game… I… I really hope you don’t mind but is it alright that I get back to the FIFA game I’m playing?

It… it’s so rare that I have any time for ANY computer games these days and yknow it’s not every day the mighty Scunthorpe United F.C is winning against Man United in the Carling cup quarter finals…

So indulge me please, just a little – I’ll make sure to finish off Light Beam’s question with the remaining steps.

Promise!

Sound good? Great, see ya next time! (The young man rushes back to the TV)

“Welcome back, everyone. The score is now 2-1, what an amazing game we are seeing tonight…”

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