Iâve been with my wife for 17 years. And after all that time, I finally figured out something really important when weâre fighting: Never, ever tell her to calm down when sheâs mad. You see, this is very important because I am almost always the cause of her anger. Telling her to calm down after I make her mad is like shooting someone in the belly and telling them not to bleed. Read on because thereâs a useful investing analogy somewhere in here. …
The all-world stock market is down 9.7% from its January peak and 7.5% from its September high. The Dow Jones Industrial Average
Â has sunk about 1,400 points in two days. Outside of a handful of U.S. tech stocks, itâs been a fairly crummy year for the global stock market, and after a record-setting bull market, you might be wondering if the end is near.Â¹ Worse, you might be reading some scary narratives that this is the beginning of the big one. Maybe it is. I donât pretend to know. Thatâs why I advocate diversifying in low-cost index funds and rebalancing portfolios to protect us from the procyclical risks in stocks.
Read: During a stock-market selloff, how would you invest $100,000?
But I have to be honest with you all about something. Every time I see a downturn in stocks I see an army of pundits, advisers and journalists telling people not to panic and to think about the long-term. This is mostly right, but I also think itâs not nearly good enough. After all, if youâre allocated too aggressively going into a bear market, then thereâs no amount of hand holding and long-term thinking that is going to make you feel comfortable with whatâs going on in the short term. And this is the crux of my gripe with this commentary: If youâre panicking in the first place, then constantly being told not to panic is not good enough.
Being told not to panic while youâre panicking during a bear market is like getting on a rollercoaster thatâs a lot scarier than you thought it was and then having your rollercoaster adviser tell you not to panic while youâre in the middle of having a heart attack during a downturn. This. Is. Not. Good. Enough.
The time to prepare for a bear market is during a bull market. After all, everyone is a comfortable genius during a bull market, and most people turn into panicked fools during bear markets. And, yes, while itâs precisely right to tell people not to panic during the downturn of a rollercoaster, itâs even more important to make sure youâre not getting on a rollercoaster you arenât comfortable with.Â²
Â¹ â If youâre still reading end-of-world blogs after all this time, then I donât know what the hell youâre doing here.
Â² â This article should not be misconstrued as relationship advice.
Cullen Roche is the author of the Pragmatic Capitalism blog, where this column first appeared. Follow him on Twitter @cullenroche.