Overdue for a Bear Market Tumble

Lately, I have been getting e-mails telling me how the market is going to nose dive. Though they look as though they are articles from respected magazines, like Forbes, they are advertisements within the periodical, not unbiased materials. As such, they generally have a hook, a teaser to get us interested in what they are promoting. Most are just another scam.

It is true that we are overdue for a bear market. A correction is a drop of 10% from the peak; a bear is 20% or more. We haven’t see the latter since 2008. Since bear markets occur every four to seven years, we surely are overdue.

The Bulls Beat the Bears

Still, there is good news. Bear markets are traditionally shorter than bull markets. For optimists, that means staying in the market through thick and thin. For pessimists, it means retaining more cash or doing some portfolio rebalancing when anticipating a downturn might occur. For scaredy—cats, it means selling in a panic when the market tanks.

John Bogle, the legendary investment guru from Vanguard, has some advice and it is the equivalent of doing nothing. In one interview, he said, “Don’t do something. Just stand there.”

There are lessons here. One is that the scaredy—cat approach has some alarming consequences. Selling when the market is falling will likely only lead to high taxes and inability to tell when to buy again – a bad combination. The pessimist approach, on the other hand, may be logical for seniors who can’t afford to wait out a bear market. If living expenses aren’t readily available and will be needed over the next three to five years, selling some stock at a profit and keeping it in cash might be reasonable. But for most everyone else, Bogle’s approach seems suitable. He has years of investing experience behind him. I dare say, more money has been lost in bear markets than has been gained by buying at the bottom of a market drop.

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