If you have been investing in the stock market or crypto market in the last couple of years now (1-2yrs) you understand more than well enough what is like to be “losing” (50%-90%)of your investment
I say “losing” because it is all really just a drawdown in the value of your investments until you decide to actually sell them and take the loss
“Now, let me tell you something, going through a drawdown is one of the greatest experiences and teachings you will have as an investor”
Believe me when i tell you its not a great feeling seeing your money decrease by 50% or more in a 4 week period, that is just not easy to stomach i dont care who you are, see the following examples:
Jack Bogle founder of Vanguard one of the world’s largest investment companies, said in an interview that during bear markets he sometimes had to grab some investment books to remind himself to stay calm and remember himself that “this too shall pass”
Peter Lynch one of the best money managers who in 1987 suffered a -42% drawdown on the investment portfolio he was managing at that time, the Magellan Fund, and also said it clearly : “The real key to making money in stocks is not to get scared out of them”
I have experienced this myself too, when i started investing year ago i already had read and understood all this concepts, yes don´t sell (duh!) i knew, but never experienced it before
So when i started investing and i had my first “$14k!” drawdown (keep in mind that was like more than half my networth at the time). It was a really a gut wrenching experience
I thought may be good idea to sell, but just because it will go lower, so it is a very smart move sell and buy lower then right? …right?
Maybe then is no wonder that the average investor generate less than 3% yearly returns
Zifush way to slash the bear
Now having said this and knowing first hand the difficulty of all of this, being 2023 and a lot of the crazy stock and crypto mania that started in 2020 already went away and left lots of people with lots of losses, this is my attempt to help by sharing the following strategies
What i will share with you is my personal approach to dealing with bear markets and investment drawdowns and were of course perfected and learned from a mix of the best investors in the world, to whom i thank and admire deeply
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–Sit tight:
Yes, yes you are going to say, what? just that? is what you have been writing all along this post, and that is just it?Well yes this principle is simple, but not easy
I have to emphasize it, because the number ONE mistake investors make is selling because of fear or because they think they can time the market
I have seen it so many times even in people who claimed they wouldn´t do it..ha
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Know what you own:
This means you invested the money because you studied and understand the company, the cashflows, the technology, the growth potential and also what risks could get them out of businessThen as long as nothing of that is changing, the the only thing that changed was the price
So sit tight, do nothing, and wait it out
This is very important i figured later on because you just cant sit tight if you don´t have conviction in your investments
Convicition is developed by studying and understanding what you are investing in
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Sell and concentrate:
Wait this must be a mistake, right? Nope, this is a strategy that involves a combination of point 1-2, but the purpose of selling is concentration.
Let´s say you have X stock and Z stock, those are your higher conviction investments, higher risk:reward investments and both are down 50%.
Then you also have another 4 stocks in your portfolio down aproximately the same (40%-60%) then if you have not studied this stocks in depth or even if you do but think stock X and Z are just better opportunities.
You could sell those and get a higher stake in both stock X and Z .
Note: Is important that you do that as a transfer, not as timing the market. Meaning you don´t want to sell one stock and then wait to see if you get a better price for X and Z stock
It is also very important to note, If your highest conviction stocks X and Z are just down 12% while the stocks you want to sell are down -50%+ then it cancels out.
That would not be a “transfer” as both the stocks you want to sell and the stocks you want to buy more should be aproximately in the same drawdown %
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If possible buy more of the best:
Every huge drawdown in your investments will make you ponder if you are investing in the right things
That makes this a good time to evaluate that and if not then follow the rule #3 pointed above
If you are already invested like that then if you have savings, cashflow, or any money ready to invest, bear markets are great opportunities
They can even be life changing so this is the moment to take the agressive stance and BUY!
Sounds easy, but probably at those moments you will be feeling uneasy and fearful
If you feel like that is a great sign.Most probably everyone is feeling like that too, that means opportunity
Blending it all
I know i mentioned mainly stock market examples or quoted some great stock investors, but this applies and transfer to many assets.
It could be real estate, it could be crypto, it could be venture capital, etc
The proven principles apply, that is the beauty of learning the. They will make you a better investor, you are aquiring the skill yourself that will serve you for a lifetime
Remember to start small. If you are not ready to see a drawdown of more than 10K, dont invest more than that
If you want to become a better investor you need to be ready
I provide some of the best ways i have in order to go through this but ultimately, is a battle between you and yourself, don´t let your emotions dominate your decisions
Take care. I´ll see you on the other side, the Bull
*Disclaimer: this is not financial or investment advice, this are merely thoughts on a subject meant for entertainment purposes, do your own research and consult with a professional before taking any financial or investment decisions