This is where the benefit of having a plan comes in – as Pericles said, not predicting the future but preparing for it. PRESERVING FINANCIAL AND MENTAL CAPITAL IS A CRUCIAL STEP You can do that by having a risk-management plan, which includes the tools to help manage and execute that plan. Sizing your positions properly is a big part. Having access to reliable signals that warn you when an individual stock (or the entire market) has turned is another big part. There’s also another key step to surviving and thriving in bear markets: knowing when to get back in. Buy-and-hold advocates tell investors to hold on like grim death when a bear market comes. They caution against getting out because, as the buy-and-hold advocates put it, “you’ll never know when to get back in.” Except you can, in fact, “know when to get back in...” as long as you have a plan and the tools! THERE ARE LOGICALWAYS TO DEFINEWHEN A BEAR MARKET IS ENDING There are also opportunities within bear markets where various industries, sectors, and individual stocks are experiencing bull trends, regardless of what the broad market is doing. You can identify these opportunities – not in a vague or squishy way, but as defined by market signals that tell you the transition is real.
And this is the place where bear markets provide opportunity – not for all investors, but the ones who were prepared. It is always the case, almost by definition, that tremendous opportunities are available in a bear market aftermath. That’s because most investors were ravaged by the claws of the bear... and were thus forced to sell at rock- bottom prices. The biggest and most powerful bull runs begin the moment the bear market ends. Having a healthy supply of financial and mental capital in those situations is a huge advantage, indeed. It’s one of the best things you can do. It is always the case, almost by definition, that tremendous opportunities are available in a bear market aftermath. Coupled with that, you need the signals to alert you to new opportunities... both during the bear market’s duration (there are always stocks going up... this was even true in the 1930s) and especially when the new bull begins. Investing in markets without a plan is like going on a road trip without any maps, or going into battle without knowing what kind of war you’re fighting. It doesn’t make much sense. But if you do have a plan, the landscape looks very different. This is especially true in the context of bear markets.
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