“You don’t make money when you buy and you don’t make money when you sell. You make money when you wait.” – Charlie Munger.
In a bear market, the entire spectrum of stocks slides down with a few exceptions. Therefore, almost everyone (whether you are individual investors or institutional investors) lose money in the bear market. This includes even exceptional investors like Warren Buffett.
Although the market slides down, you don’t actually lose money until you sell your losing stocks. But, some of the investors don’t have the psychological strength to hold them while losing money. In the end, they sell those losers and book a loss.
The bull market and bear market is the inextricable nature of the stock market and well-suited investors understand this.
- If you do not make money during the bull market, you don’t belong to stock investing.
- If you do not lose money during the bear market, you don’t belong to stock investing.
In comparison to the average market return [stock symbol=”DJI”], exceptional investors make more money during a bull market and lose less money during a bear market. Inferior investors make less money during a bull market and lose more money during a bear market. The worst investors lose money during a bull market and lose even more during a bear market.
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The prime worry of wise investors during a bear market should not be – how to avoid losing money, rather it should be – how to take advantage of it. This may sound absurd, but they should be excited to welcome a bear market. There are ample opportunities during a bear market.
One way to be prepared for the worst market cycle is to hold cash and a lot of them. Just holding cash is not enough, if you cannot deploy it when opportunities come around. Another way is to hold an excellent business and sticking with it during the bull and bear market. Average investors do not have the grit to do either of them.