Every time I buy a stock that is already down a lot-- the one that my analysis leads me to believe is cheaper than dirt-- it declines more. Did I completely lose my ability to value stocks? Did I start ignoring Will Rogers' advice? Buy stocks that go up, and if they don't go up, don't buy them.
No, I didn't get much dumber, and my stock picking skills haven't diminished that much over the past year. I was simply a willing participant in the latest cyclical bear market. Bear markets make you feel dumber than you are the same way a bull markets make you feel smarter than you are. Feeling dumb makes you do the opposite of what you should be doing. Painful losses are a dangerous thing because they can make us panic, lose confidence and do the opposite of what we should be doing.
To alleviate the pain we sell, react, and default to the only asset that made us money (so far) in the bear market – cash! Cash is only a king when other assets are princes, and when you can’t find a stock with long-term superior risk reward profile. However, during a cyclical bear market, cash is slowly demoted to a prince as great companies are thrown out the window with the junkie once. You have to actively make yourself aware of the eight-letter word T-O-M-O-R-R-O-W! Yes, tomorrow. Think of the lyrics from Annie:
When I’m stuck with the day that’s gray and lonely,
I just stick out my chin and grin and say, ohhh,
The sun will come out, tomorrow,
So you gotta hang on til tomorrow.
Of course, we don’t know if tomorrow is tomorrow or years from now. But investing is a marathon, not a sprint. Don’t let the bear market turn you into a sprinter.
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