08 May How to sleep like a baby (during a bear market)
The night when you go to bed and say to yourself ‘I have no idea what the world will look like when I wake up tomorrow’ is when you want to buy more. (April 27, 2020)
I wrote this phrase in my Investment Journal last week.
It was eerily similar to how I felt 12 years ago right before Lehman Brothers went under.
I just wanted to capture that feeling for the next bear market.
Now I promise, I did not pop into your inboxes on a Sunday to tell you some trick about market timing. My personal investing (non) strategy is: Time in the market beats timing the market.
So I just buy on the first of every month. Since 1996. Never sold. 288 straight months. Spanning 3 bear markets.
When things feel scary, I try to boost the monthly amount – but I’m steadfast in never reducing it. But it’s damn hard, which is why I wrote myself the note.
I’ve spoken with so many RadReaders about staying the course (and god forbid, playing offense) during a bear market and here’s what they told me:
“I missed the 2009 rally and the COVID-sell off. Now I’m too scared to jump back in.”
“I’m FOMO’ing so hard about this market rally.”
“I know you’re not supposed to say “This time it’s different” – but it just feels different this time.”
“I can’t take these emotional swings. I need to up my cash.”
And then I ask them a question:
Do you know how much would you lose (in $ terms) if the market was down 50%?
It’s a total back of the envelope test. Just some algebra across your various holdings. And of course, all the usual disclaimers about past performance, etc, etc.
I think about that number across all of our assets all the time. Lisa and I discuss it. Not in percentage terms, but in dollar terms.
How would our behavior change, if this were to happen?
Would we regret having paid a premium to live so close to the beach?
Are other parts of our lives at risk, when this happens?
And when the COVID sell-off happened, yes we were still scared just like everybody else.
But we had already “talked through the scenario” and knew we’d probably be ok. Which enabled us to raise the monthly investing amount, when most were decreasing it (or even abandoning it).
Most RadReaders haven’t done this simple math. Let alone had the conversation with their partner.
So I made you a little video tutorial.
Now you can do this calculation with:
- A pen, paper and calculator
- Any financial aggregator like Personal Capital
- A spreadsheet
This one number can help you turn down the noise… and dial-up the signal.