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Intelligent Investing

Why I’m thankful for bear markets

/ 04:03 AM November 25, 2019

Thursday is Thanksgiving Day. Although we don’t really celebrate Thanksgiving Day in the Philippines, it shouldn’t stop us from counting our blessings. And even though it is hard for investors to be thankful nowadays given the significant amount of volatility in the stock market, going through difficult times such as major corrections and bear markets is necessary to make us wiser and more successful, not only in our investments but also in managing our finances.

Personally, going through major corrections and bear markets has taught me many things, including the importance of risk management. It has taught me the importance of limiting the size of my investment in the stock market to an amount that I can afford to keep for a long time. After all, major corrections and bear markets can last for a very long time and I don’t want to be forced to sell at the low because I need cash to pay for something. Going through difficult times reminded me that investments in the stock market should be made to address long-term needs such as retirement and not needs in the near future.

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It also taught me the importance of having other steadier sources of income such as my job, fixed income investments (like bonds and time deposits), and rental income to fund my everyday needs.

Although I can earn a lot from investing in the stock market, returns are not predictable. Thus, I cannot depend on it to fund my everyday needs. In fact, if I were pressured to generate steady returns from my investments in the stock market, I would become very emotional. This would make it difficult for me to stick to my plan on what stocks to buy and at what price to sell or cut my losses if my trades turn sour. Emotional decision making would negatively affect my returns.

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Going through major corrections and bear markets has also taught me what it means to be “greedy when others are fearful.” I remember how fearful I was the first time I experienced a bear market. After all, stocks that I thought were fundamentally sound and cheap continued to become cheaper every day.

There were also convincing arguments why conditions would continue to get worse and why it would be wise to sell stocks at whatever price. However, conditions always improved and only investors who were greedy enough to buy during those difficult times made a lot of money. This proved to me that big money is indeed made during major corrections and bear markets. However, only a few successfully capitalize on these opportunities because it is hard to overcome the fear that these major corrections and bear markets create.

Finally, going through difficult times in the stock market has taught me the importance of frugality. Being frugal has been very helpful because it has allowed me to maintain my standard of living even during difficult times. It has also allowed me to accumulate more funds that I now use to buy stocks, including those that are trading at bargain prices during major corrections and bear markets. One of my dreams is to someday be a successful investor who makes a lot of money during bear markets, but for this to happen, I know that I will still need to build my capital.

Like everyone, I’m looking forward to better days for the stock market, when the PSEi would finally hit and go beyond 10,000. However, I’m also thankful for the difficult times, including major corrections and bear markets, because of the lessons they have taught me on how to become a better investor.

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