The stock market has gone and done it again.
We’ve officially entered bear market territory.
And with that, come all the scary headlines about increased risk.
Headlines such as these…
How Dangerous Is The Bear Market? from Forbes.
7 Tips on How to Survive in a Bear Market from Merrill Lynch
How to Keep Retirement Assets Safe In a Bear Market from AARP
It’s as if bear markets are super risky.
But they’re not. In fact, they’re just the opposite.
You see, for the long-term investor it is a bear market that can reduce risk. In fact, you make most of your money in a bear market. You just don’t realize it at the time.
By now, you’re familiar with the phrase “buy low and sell high”. Which begs the question – when do you get a chance to buy low?
In bear markets.
As Warren Buffett has taught us, you “pay a dear price for a rosy consensus”. In other words, you pay dearly for stocks at times of maximum optimism in the stock market. And there’s few things more risky in the market than over-paying for a stock.
This is where the average investor’s thinking betrays them…
While they would avoid paying top dollar for a new car they willfully give their money to pay top dollar for stocks.
While they’d absolutely love a juicy bargain when buying a new boat, they see a juicy bargain on stocks as something to shun.
Friends, we’ve been in bear markets before. Plenty of them.
Since 1929, there have been 26 bear markets. And according to the National Bureau of Economic Research, The United States has been in recession 14 percent of the time since World War II.
Stocks don’t always go up. Risk is always present.
But here’s the thing – market declines get all the attention when they’re happening, only to be ignored or forgotten when the next boom rolls around.
And the next boom will roll around.
And it’s during that time that most investors look back at the recent market decline and say these very common words…
“Man, I should have bought xyz stock 18 months ago when it was so low. I would have made a fortune!”
If you invest for the long-term, you make your money in bear markets. This is due to the simple fact that bear markets allow you to buy quality stocks at a fraction of their real or intrinsic value. They’re literally on sale.
I’m asked all the time how I did it.
I’m quick to state that I’m not genius.
I simply followed the investing formula of the greats like Warren Buffett. Which is quite simply this – buy quality stocks when they’re trading at a discount, so that you can sell them later at a maximum price – buy low and sell high.
Speaking of Buffett, I’ll leave you with a famous quote that is so appropriate for a bear market – “Buy stocks like you buy your groceries, not like you buy your perfume.”
Look for stock market bargains my friends. That’s how fortunes are made.
Be free. Nothing else is worth it.
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