Answers to
Practical Questions
Visualize a Bear Attack
Okay, so now an investor knows a Stock Market Bear attack is to be expected, but they are just not sure when or what a Stock Market Bear attack will feel like.
An investor can get a sense of what a Bear attack feels like by opening their last investment statement and by taking the total value of the portfolio and multiplying it by 0.80. This new number is what a diversified, equity ETF portfolio will look like if a small Stock Market Bear attacks, i.e., the 20% variety. This will feel pretty bad, but it can be MUCH worse!
Now let’s explore what a BIG Stock Market Bear attack feels like. Take the total portfolio value and multiply it by 0.50. Be careful, this may cause an investor to experience a severe stomach churn. That is how a big Bear attack feels, and this feeling can last a few years.
This gut wrenching feeling is NORMAL, and what an investor SHOULD EXPECT. But investors need to know that Bears get tired. After a few months or a few years, the Bear usually withdraws, and an investor’s portfolio will fully recover and go on to reach new highs.
An investor’s first Bear attack is always the most traumatic. The attacks that follow are a little easier to deal with.
Three quotes come to mind when dealing with Stock Market Bear attacks:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”
– Warren Buffett
“The investor’s chief problem and even his worst enemy is likely to be himself.”
– Warren Buffett
“Volatility in the up direction is not a problem – it’s the downward volatility that offers discourse.”
– Coreen T, Sol
One final comment on visualization. Let’s say for just one moment that an investor did sell some of their ETF portfolio during a Bear attack. Would they honestly KNOW when they should start buying again? The news headlines are always the absolute worst at the bottom of Bear market. NO ONE HOLDS UP A SIGN TO SAY IT IS SAFE TO START INVESTING AGAIN. Most investors who sell on the way down also miss most of the recovery, because they are never quite sure when they should start to invest again.