A Few Good Things About Bear Markets

Given the current market environment, I bet many of you are wondering, "should I sell my stocks? What if the market keeps going down?" But there are a few positives to bear markets I wanted to share.

The first good news about bear markets is that they're relatively easy to identify. Unlike a bull market where every new high feels like "the top" before an impending crash (even though very few actually are), in a bear market, each new low brings you closer to "the bottom." And that's actually a good thing, because "the bottom" is the place where things turn around and start getting better. You never know exactly when it is, but as the market falls, you know you're closer than you were yesterday. It can be a good time to buy, or at least, you know that it's not a good time to sell. That sort of clarity is rare in life, and especially in investing.

The second piece of good news is that stocks are on sale. Suppose that last year you bought a stock for $100/share, and today you can buy it for $50/share. You're getting twice the value for the same price. That's good. Whether you're putting some extra cash to work, or just reinvesting income generated elsewhere in your portfolio, all that money adds up to a bigger pile of assets later on.

The third piece of good news that investing during a bear market is painful. I know that sounds a little weird, but hear me out. Ultimately, all investing is about some tradeoff between short term and long term pain. You can have short term pain, or you can have long term pain.

Bad investment behavior produces long term pain. But along the way, it produces short term excitement and (fleeting) riches. Think: meme stocks, crypto traders, and get-rich-quick schemes. These are all short-term games, more like gambling than investing.

Conversely, a bear market is all about short term pain. Yes, it sucks watching your portfolio slouch downwards, inch by inch, week by week. Especially when you add new money to stocks, only to see your new investment lose value almost immediately.

But this is where the biggest opportunities lie, in part because you have so little competition from other buyers. In a "buyer's market" you can get some really high quality stocks at great prices. Yes, the pain is immediate. But the long term rewards are, statistically speaking, larger and more likely to occur. It's the ideal investing environment, even if it doesn't feel like it in the moment.

The final, and best, thing about bear markets is that they eventually end. The US market has, over the very long term, produced incredible wealth for long-term investors. Each recession, market crash, popped bubble, and crisis has led, eventually, to new all time highs for the market. It's only been a matter of time. Bear markets can last for weeks, months, or even years, and they're undeniably painful while you're in them. But eventually, eventually, the market comes back and rewards patient investors.

See below, a big fat bear, ready for hibernation.