Last Update: July 2021
When I first start trading, I was caught in the trap of “short-termism.” My focus was on what the market was doing over the next few minutes or days. Without realizing it, I was playing in a low probability environment that required a high skill level. Instead of embracing the powerful odds of a rising tide, I was betting on the ebb and flow of each wave.
Then I had kids and everything changed.
Investing for the future becomes clear and present when you start to think about posterity. My time horizon shifted from days and weeks to decades, even multiple generations. Do you know how powerful investing $1 today becomes when you look at the potential for growth over decades? It’s utterly incredible.
For me, the easiest way to embrace bear markets, to look upon them fondly, is to set your sights on the long, long run.
Perks of a Long-term Perspective
- First, it allows you to weather the downturn without panicking and selling your stocks.
- Second, it trains you to buy when stocks are on sale. To those with the proper mindset, sinking prices are viewed as a godsend that triggers greed, not fear.
The following quote is attributed to J.P. Morgan,
“In bear markets, stocks return to their rightful owners.”J. P. Morgan
Warren Buffett, the Oracle of Omaha himself, said something similar.
“The stock market is a device for transferring money from the impatient to the patient.”Warren Buffett
There’s no way that a trader obsessing over the market’s movement over the next week will hold through a bear market. Their shortsightedness will inevitably shake them out.
If my time horizon is decades, why again should I care if the market suffers a temporary 30% decline? I shouldn’t! It’s a blip on the long-term radar. I find that when such trying times arise, reminding myself of my goals and plan helps to ward off the temptation to panic.
The rightful owners of a stock are those who have the wit and will to withstand the ravages of volatility and bear markets. I want to be one of them.
Never Waste a Crisis
I first heard the phrase, “Never let a good crisis go to waste,” in 2008. It works in the political sphere to get legislation passed when the public is clamoring for action. But it also applies to the field of investing.
Bear markets don’t come around that often. Historically we get a good 20% to 50% decline only once or twice a decade. These rare events usher in golden opportunities to grab equities at fire-sale prices. If my objective for purchasing stocks is to fund my kid’s college in 15 years, then do you think I’d rather buy shares at record highs or 30% off the peak?
Or, if my goal is to grow my wealth to adequate levels to generate sufficient annual income to fund my retirement in a few decades, then which do you think helps me reach that goal quicker?
Why, buying at the massive discount, of course!
Tackle Trading Resources on Portfolio Protection
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Portfolio Protection For Beginners [Free Articles]
Everyone invests. Everyone has money. Currency is a form of investment since the gold standard was removed from the currency system.
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In part one of our new series on hedging, we defined precisely what the concept means. Today we’re turning to the why.
With a sound foundation on the what and why of hedging, we’re now ready to dissect the devil. Namely, when do I place my hedge?
The way that you go about hedging varies depending on what your strategy is. Come learn how to hedge a naughty naked put.
Today I want to talk a bit about the impact VIX spikes have on the cost of portfolio protection.
It’s nailing the management of Protective Puts that separates the men from the boys. Allow me to offer up a few ideas.
The bears are roaming. And while their sudden emergence likely spelled losses for traders far and wide, the pain doesn’t have to persist. I look at this as a “fool me once, shame on you; fool me twice, shame on me” situation.
Contrarians in a bear market seek signs of capitulation. Specifically, evidence that bulls are throwing in the towel and abandoning their once beloved positions.
Herein we explore the perks of lengthening your time horizon and embracing Long-term Investing.
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