Can a Bear Be Your Friend?

A bear market isn’t much fun. But there are different ways to respond to a bear.

If you’re still in the prime accumulation phase of your investing life, a bear market is your friend. Really. A quote in the current issue of the SMI newsletter puts it this way, "You make most of your money in a bear market; you just don’t realize it at the time."

The reason is that during a bear market, your new investment dollars go farther — i.e., you can buy more shares with less money — as Austin Pryor explained in our March 2019 issue:

[D]uring the investing phase of your life, you’re going to be a net buyer of stocks for many years to come. You want your monthly investing dollars to stretch as far as possible, acquiring as many stock and stock-fund shares as you possibly can. And that happens when prices are down....

Stock prices that have been battered by a bear market work in your favor, allowing you to stockpile shares to the max.... So, learn to love the bear! The truly long-term investor realizes we need more of them.

What might have cost $100 a few weeks ago may be available for $75 now. If you saw the same deal at Walmart, you’d think, "Wow, that’s a pretty good sale." But as an old saying goes, "The stock market is the only one where people run away when there’s a sale."

So if you’re younger, don’t run from the bear. Run toward him! (SMI’s Just-the-Basics strategy is great for this approach.)

In years to come, you’ll be glad you did!

Keeping your distance from Mr. Bear

For those of us who are older (and therefore have shorter investing time frames), a more cautious approach may be in order— one that involves trying to preserve the value of our holdings as much as possible and perhaps steering new investing dollars toward non-stock investments.