It hasn’t been exactly that time of the year when we are faced with grumbling bears and depressing news all over the channel but investing in this year market hasn’t been that easy.
The past couple of years have seen the market rise up to double digit gains that investors sort of get used to that and forget that investing in a higher bull market can result in a permanent loss of capital when buying without that margin of safety.
For some reason, there’s always the promising growth outlook that you hear that would justify your reasons for buying higher.
If you are a new investors who’d just entered the market in the past 1 or 2 years, you’d fall under these 2 categories.
First category, you surream an enormously high level of energy that gets you raring to go and put both your feet into the market right away. After all, the returns have been pretty good and market outlook looks promising with many countries starting to raise interest rates signaling greater time to come.
Second category, you are wary of the past bear market, in particular the great horror stories of the financial crisis in 2008 that are still very much popular among the new generation. You kept a good amount of warchest allocation and wait, but are slowly getting listless with the amount of waiting and hence dip deeper with more allocation into equities and less warchest. Your energy starts to escalate as your exposure to equities are now in significant position.
The bear will come once in a while to visit in the most unexpected and unglamorous way of entrance in the stock market.
The bear comes biting and it’ll come scaring each runner because you are stepping into their territory and they don’t like it. This happens when there are more and more people stepping in into their territory as the bull market comes raging on.
When the bear comes out of the wood, it’ll start to run and chase and there will be a few people who’ll get beaten along the way to become the prey of the wood.
But there will also be people who prosper by either hiding or running faster than the bear.
If you look at the attached above, the bear runs at a speed of 34.8 mph and the only way for you to run faster is if you transform into a lion or a cat alike type of animals (Cheetah/Jaguar).
In the stock market definition, that means either exiting the market by timing it perfectly at the top or you prepare your psychological battle with the bear by taking it directly. That means having to prepare mentally that you are going to see a drawdown of 30-50% of your portfolio at some point in time.
If you have a strong mental mind, you can remind and encourage yourself that the drawdown can be temporary if your portfolio consists of strong companies that will rebound once the bear market is over. Economic cycle always recover in time and strong companies will bounce back. It is merely a state of the mental which many people are not trained to take it.
Having a portion of your ammunition in the form of warchest also helps mentally that it doesn’t suffer a drawdown as deep as your equities but do remember that having more warchest doesn’t equate to having lesser risk. A warchest is only as useful if they are being put to use but the majority will be afraid of doing so when there are blood on the street.
One can only look into the recent oil bear case in 2015 and the recent telco blood in the street market which many are finding it difficult to find an entry point, despite getting very interested in the exposure of the sector.
If you happen to be a turtle, please do not try to attempt to outrun the bear as you know you’ll lose in a running race. Get to somewhere safe and hide from the shelter, it’ll bring you greater likelihood of surviving once the winter is over.
Thanks for reading.
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