The Stock Market Might Do Something Worse Than Crash

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This is more like that.

Persistent stock market declines that the young among us simply can’t recall, even if we lived through them as wee children.

Source: CNBC

30.5 months.

20.4 months.

20.7 months.

And so on.

According to Business Insider (you’ll probably have to subscribe at the link to read the entire article), one stock market strategist thinks we’re in for something similar sometime soon:

Source: Business Insider

I tend to not pay much attention to these types of articles because for every prediction of significant downside; you can find an expert who argues the opposite.

I cite this call by John Hussman because it’s compelling. And, of course, what if he’s right?

Just like we’re apparently overdue for a major earthquake in California, we overdue for a prolonged bear market in the United States.

It doesn’t matter much to me because I’m no longer in the stock market.

I execute a cash-focused strategy alongside a low cost of living that renders being in stocks unnecessary. Why spend the time and go through the emotional ringer when you don’t have to?

You can read this article to see what I do instead. I’m going to recycle cash. I have created the conditions for my alternative strategy to actually work.

Anyhow, the point to make here is that our minds play funny tricks on us, especially when we’ve only heard about something.

It’s a bit like the pandemic, right?

It seems that if you weren’t directly impacted by the pandemic — like somebody you love or know didn’t die — maybe you didn’t/don’t take it quite as seriously. Not the case for everybody, but people definitely exist who feel like it’s not real because they have no direct experience with it.

I guess this is just one common component of human psychology.

It’s scary.

Meantime, we freak out over the prospect of a stock market crash. This makes no intellectual sense, particularly when you consider the emotional havoc even the thought of a crash triggers.

The numbers don’t lie. The best thing you can do after significant downside — such as a crash — is stay calm and buy stocks.

Source: CNBC

And, pursuant to the “bear market” of February 2020 (I’d rather call it something closer to a crash), here’s how stocks fared through the end of last year (via The Washington Post):

The S&P 500-stock index, the most widely watched gauge, is finishing the year up more than 16 percent. The Dow Jones industrial average and the tech-heavy Nasdaq gained 7.25 percent and 43.6 percent, respectively. The Dow and S&P 500 finished at record levels despite the public health and economic crises.

And, of course, 2021 is off to a rousing start.

But a two-year bear market — or maybe longer! Who has the patience for that?

It should scare you a heck of a lot more than a crash.

If you’re not an amazing stock picker or guess on the right sector or something, you’re probably not going to fare too well in a bear market.

And goodness forbid we see something like what happened in 1937 — a five-year plus bear market.

All I’m saying is a bear market should scare you more than a crash. And you should prepare a strategy for a bear market.

One option — treat it like a long crash. And buy for as long as the bear market lasts.

However, this is easier said than done. It’s a super weird feeling to buy stocks that keep going down — week after week, month after month, and maybe even year after year. What if the time you actually need your invested money starts sneaking up on you?

If you were my best friend, I’d support you through this. However, my actions would speak louder than my words. I’d sell and start buying again on the way up. You’ll have time, as the rebound from a meaningful bear market will not happen overnight. There’ll be fits and starts.

This said it’s just not in my mental composition to want to deal with this type of conundrum.

That’s why I adhere to my recycle cash/cash is king strategy. It puts me in the comfortable position of writing about these things, not worrying about them.