Take a deep breath … relax … exhale … repeat. Yes, we’re in a bear market. It was made official once the S&P 500 Index dropped down more than 20%. But, since it’s been shown that a positive attitude leads to a positive outcome, we’ll get you through this with some daily affirmations. Here are four to get you through this rough time in the markets.
THE MARKET IS NOT GOING TO ZERO
Investors tend to extrapolate when the market goes down two percent, three percent or more — every single day — and get themselves into a lather about how much they are going to lose if it keeps dropping.
But the market is not going to zero – it might just feel like it. You need to fight your instincts here. The market right now is like touching a hot stove: you want to pull away to avoid the pain. But even if you get burned, you are still going to use that stove the next time you cook dinner. Stocks are painful today, but may not be tomorrow.
THE NEWS ALWAYS LOOKS BAD WHEN IT IS BAD
Take your pick of bad news: war, interest rates, cryptocurrencies, inflation, supply chains, COVID-19, rising wages. As a result, you see negative viewpoints everywhere, and this helps reinforce your own negative views. Once these negative thoughts enter your head, you start looking for more, which sets up both a confirmation bias and a recency bias. In other words, you expect the bad news to continue.
Keep in mind, though, that the best time to buy is usually when there is no reason to buy: meaning, all the selling is already done. As they say, no one rings a bell at the bottom. I can’t tell you when the bottom of the market will be, but I can guarantee that all the news you hear at the bottom is going to be bad.
DOOMSAYERS DON'T HAVE PSYCHIC ABILITIES
In a bear market, the doomers come out to tell investors that everything is going to get worse. These gloomy predictions get a lot of attention, sell newsletters and training courses, and are far more interesting to the media than a forecast that says the market might go up a bit. And, of course, these doomsayers reinforce the confirmation bias mentioned above.
But to help you get through the bear market, remember that these prophets of gloom do not have psychic abilities. They do not have any better predictive ability than you or I. In other words, we all have none. Keep simple economics in mind here. If someone could actually predict the market, then simply telling others about their prediction would only impair their own ability to make money from their prediction (since everyone would do the same thing and the prediction would be fully discounted in the market). Remind yourself daily that no one — no one — can predict the market.
MARKETS PRICE THINGS IN AHEAD OF TIME
One of the best mantras is to remind yourself that the market always looks forward. Thus, expectations have a way of getting fully priced into valuations (and more). Today, everyone expects a recession. Everyone expects hyperinflation. Everyone expects higher interest rates.
It is possible to set up a ‘heads you win, tails you break even’ scenario. If all the bad news actually transpires, investors shouldn’t care much because the market has already priced in all the bad news. But if any of the bad news turns out to be less bad, or, heaven forbid, good, then the markets can go on a serious rally, because no one was expecting anything good.
As always, my team and I are here to help.