"Personal Decisions Are The Leading Cause Of Death"
I stumbled across a research paper titled Personal Decisions Are The Leading Cause Of Death. My first thoughts were along the lines of the Darwin awards or the couple of hundred thousand people who die taking selfies. There are also longer term implications related to poor diet choices and people who are able to but choose not to exercise.
This of course ties in decisions investors make at critical turning points, or what they believe are critical turning points in the markets. To the extent that anyone is scared right now, and I know from what I read that some folks are, the decisions you make regarding your portfolios are metaphorical life and death.
When I talk about sticking to investment process, whatever that is including hold on no matter what, while the market is soaring higher, no one disagrees. Here we are now in the middle of whatever this will turn out to be and I am seeing a whole of what to do now types of articles and tweets. The answer is always the same, stick to the investment process you chose for yourself as being best when emotion was not influencing your thinking.
To repeat from earlier this week, the bear market that starts after this one, will be starting from a much higher level than the current all time high. Let that sink in. What does that sentence kind of read like? Like hindsight bias that was prevalent after the last two bear markets, but this is before we are even 100% certain the current event even is a bear market. It is normal for markets to go up the vast majority of the time but they have large declines every so often.
If you are dollar cost averaging in with a 401k or the like then you'll be buying at cheaper prices for a couple of years, this is a good thing, this is better for your financial future. Once the new/next bear market bottoms out it will make a new high, we just don't know how long any of this takes. If you are taking a sustainable income from your portfolio (something like 3.4 or 5%, not 10%) and you have a suitable asset allocation then you should be able to weather this although I would add that I include portfolio defense (as I've outlined in about 1000 blog posts before) to try to smooth out the ride further.
Once you can truly accept that bear markets come and more importantly go every so often and that they are never different (circumstances yes, market manifestations no) then it becomes much easier to endure them without panicking. I said back in May that I believed a bear market had started and so have been preparing clients for this as well as blog readers since then. In reality I am personally always preparing for bear markets by reiterating my process in these blog posts. I have long been at the point where it is just a normal part of the cycle. I always say the only variable is how long it will take to play out (I said that above) but the other variable for me personally is how much trading will or won't need to be done for clients. How busy am I going to be isn't really something that too many people get worked up over.
Back to the first paragraph, one way to help get to the state of mind I am talking about is to exercise regularly and vigorously. On some level I think most people realize that exercise can help with stress. A stopping point between panicking about bear markets and not sweating them at all might be training yourself to never succumb to panic and I am convinced that regular, vigorous exercise can help in addition to the dozens of other benefits exercise provides.
If you've been reading my posts long enough, then this is not the first one of these you've been through with me and through the GFC as well as the other false positives along the way and you've seen I handle them all the same, I take defensive action slowly based on my indicators, sometimes it's a serious market event and sometimes not. If I can do that then you can too.