David Ojeda All posts

On bear markets, and people acknowledging their real risk profiles

· Reading time: 2 min

Bull markets

Bull markets are fun. Everyone's optimistic; everyone's being greedy; everyone's making money.

Stockbrokers and investment services experience a huge burst of new accounts, and money is flowing like there's no end.

It's simple to invest during a bull market. What can go wrong? New All-Time-Highs are around the corner. And they will keep coming for months, even years! Right?

Not quite.

The market is cyclic. Every once in a while we will see drawdowns of 10%, less often 11-20%, and even less often those huge drawdowns of more than 20%.

You know it. I know it. And every one that invests in the stock market should know it. But one thing is "knowing" it, and another different one is living it.

Bear markets

At the time of this writing, we are in a bear market. Some might say not quite yet, and some might say we were already months ago, but that's not the point. We're seeing the stock market plummeting, and people is losing their wealth.

Bear markets are not fun for most people. It's usually a sign of big things happening around the world; war, supply shortage, high inflation, you name it.

And investors that have never experienced a bear market tend to learn and acknowledge their real risk profiles, taking their investments out of the stock market, and losing money in the process.

Are people that started investing out in the previous bull market over-exposed to high-risk assets? I bet they are. Can investors learn their real risk profiles without having to experience both bull and bear markets? I hardly think so.

I would love for bear markets to be non-existent and to only experience bull markets our entire lifetime. But that's not how things work.

Bear markets, tho, leaving nasty things happening around the world aside, should be a happy occurrence for investors whose time horizon is long ahead, like 10+ years.

It's a time to keep saving, keep investing, keep buying. There hasn't been a bear market that has not recouped its losses. So, stick to your plan and control your emotions.

Rewards await.