A reader asks: With all your focus on bear markets as opportunities, do you get sad when stocks are up?
Interesting observation. Yes, I do think declining prices often presents opportunities. And so I have mentioned numerous times in various ways.
Sad or Not?
These days, when prices advance, I usually bide my time. I feel there is no rush to invest funds at prices that could be (or, in terms of my expectations, should be) lower. That means I often wait. That wait could be an extended one.
I suppose I could postulate that there are always opportunities, as not all stocks advance at the same time and same rate. And that might be true. But generally I stick with the stocks I already own. As it is, I probably own stocks in more companies than is reasonable. So I have no great desire to open positions in more companies.
I catch the morning news when the markets are open. If the general indexes are down, I pay attention, and check prices for stocks I am interested in. If the indexes are up, I also check some prices, but do not pursue much more than that.
And Then
In extended bull markets, I have found myself wondering ‘will it ever end?’. Of course I know that sooner or later, prices will decline. But will they decline enough for me to feel I am getting a great opportunity? How long will I have to wait for bear market? Will I wait too long? Should I invest now instead, even if prices are higher than I would like them to be? As mentioned, I know that opportunities are relative. Recency bias is real, and I am no more immune to it than anyone else. And I know that while it seems some opportunities are limited and time-based, one of the least optimal things I could do is rush into something I am not fully comfortable with.
On Paper
When I look at at a chart of any index of stock prices–for example, the S&P 500, or the Dow, or Nasdaq–let’s say from ten, twenty or thirty years ago, without the chart having benefit of displaying what happened subsequently up to the present, it seems that just about any price back then was a profound opportunity given today’s prices. But we tend to think in such short term viewpoints, that it is hard to extrapolate from today into a future in decades.
When I was about to buy my house, I mentioned to a friend, “Maybe I should wait until prices come down.” He said: “I’ve been waiting forty years for that.” So I jumped in.
Real Estate
There is a joke I have told that may be relevant. Living in California means that we are prey to the high cost of real estate. At times someone might complain about it. My response was, “I know how to afford real estate in California.” Suddenly they wanted to know my solution. My response was: “Buy something twenty years ago. That’s what I did.” Perhaps this might seem like a cruel joke (but it was not my intention). What I said was the truth. And even twenty years ago real estate costs were also considered high. I am not saying that there is a smooth affordability line from the past to the present, but sometimes it seems that waiting for the perfect moment to jump in might mean waiting a long long time.
And yes, there were times of price declines in the interim. Few people took advantage of them then. I certainly did not, I was as susceptible to the prevailing gloom at the time of those declines (Think the Housing Crisis/Great Recession of 2008-9). Fortunately I was already a homeowner by that time.
Similarly, only waiting for bear markets to buy stock may mean a long long wait. Bear markets will come sooner or later, often later. And if I waiting only for bear markets, I would have far less to my name. Bear markets are fun and exciting for those with funds to invest, but allowing the magic of compounding to work means not waiting for the perfect moment.
What is you bear market plan? Let me know here.
Amelia Earhart is probably the most famous female pilot in aviation history, an accolade due both to her aviation career and to her mysterious disappearance. She wore the jacket displayed here on many, but not all, of her flights. Courtesy National Air and Space Museum, Washington, D.C.
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