What Have I Learned from this Bear Market?

I was doing my surfing around various financial forums, and came across an eye catching thread on the financial webring forum.  The thread subject was, what will you learn from this bear market?

After pondering this question for a little while, this is what I came up with for what I’ve learned thus far in this bear market.

  1. The Higher and Faster they Rise, the Harder they Fall – During the boom times, it was great to be in the commodities train as it seemed like nothing could lose.  However, like any bubble, they tend to burst.  A prime example is what’s happening to oil prices and what happened to technology in earlier this century.
  2. Even Strong Companies Fall in Price – With fear based selling in the markets this year, no one is immune.  The key is to keep your eye out for strong companies that have been irrationally sold off and showing signs of turning around.
  3. Never Try to Catch a Falling Knife – This rule is more for the stock traders out there.  Just when I thought that stocks were cheap, I started buying even though the markets weren’t showing any signs of recovery.  As a result, some of my purchases have fallen further, some as much as 50%.
  4. Financial Regulation is a Good Thing – This one is obvious now in hindsight.  Deregulation of the financial markets in the U.S lead to greed which in turn ultimately brought on the economic crisis.  On the other side of the coin, the Canadian regulated financial industry is relatively healthy (thus far).
  5. Fixed Income has its Place in Long Term Investing – As some of you know already bonds in a portfolio help reduce the volatility without sacrificing too much of your returns.  However, for those young investors with long investing time frames, it’s not uncommon to see portfolios with 100% equities to squeeze out every available percentage point.  For those of you sweating buckets due to seeing all the red in your portfolio, it may be time to revisit your asset allocation.

Now back to you, what have you learned from the current bear market?

I've Completed My Million Dollar Journey. Let Me Guide You Through Yours!

Sign up below to get a copy of our free eBook: Can I Retire Yet?

Posted in

FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
Subscribe
Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

27 Comments
Newest
Oldest
Inline Feedbacks
View all comments
Mark
12 years ago

All good points. I am glad that some good thinds have come out of this bear market.

Alin
12 years ago

That’s right! Very good article Frugal! And I think it is room for even more downside in the stock market. Why? Because the outlook for 2009 is not so good. I wrote more about that here http://think.rentacar10.eu/?cat=4 You can check it out.

Mark Wolfinger
12 years ago

Hedging is essential – in good times or bad.
Conservative strategies, using stock options – are the best tools available.

Kam
12 years ago

I learned to use a tight stop losses in a bear market. I learned how to believe in bonds and T-Bills. I learned how to step to the side line and not to jump into any stock before doing lots of research. Fluctuation in gold prices was a good time to trade gold.

Will
12 years ago

thanks for the information i will apply that.

Will
12 years ago

interesting site it really learns me a lot.

WeSeed Writer
12 years ago

That history repeats itself. And then it does it again and again. That’s at least some consolation to all the stuff going on right now. It has happened and will continue happening. But so will the recoveries.

Scott
12 years ago

@ Sonny: of course we haven’t learned anything — EVER!!! Well, except maybe that the Earth really is round and not flat. Why do you think the world is the way it is? The only thing we have learned is how to slop the sheen of sophistication over our basic human instincts and traits (eg. fear and greed). Don’t forget (or now learn) that the markets are merely a function of human behaviour.

There will come another Bull and yet another Bear, all linked with bubbles and crashes and booms and busts. Life will go on. You’ll tell your grandkids about the Crash of ’87…and ’00…and ’08…and…well, you get the point.

What did I learn?: You get what you pay for.

Craig
12 years ago

Good advice and I’m sure like anything else, it will only educate you further in the future when things get better again. Help have a more long term outlook and be proactive in the future.

Craig
http://www.budgetpulse.com

John Doe
12 years ago

Know your stops and stick to them….especially in a bear market with exceptional uncertainty.