This is The Cost of Entry

Welcome to the bear market, what we are experiencing is the cost of entry for being an investor. Times like this may seem scary, but these moments are the reason stocks outperform. First let’s back up and see how we got here.

The Crisis

Back in 2008 the bears came out to play, they wrecked the economy, threatened the banking system, and scared the shorts off everybody. Jobs were cut, houses foreclosed on, and laws were written to prevent this specific event from ever happening again. People were scared, and many Millennials are financially scared after growing up in this environment. After a long and hard year, the bears finally returned the cave, and took a twelve year nap.

In 2008 I was in High School and definitely had no idea what was happening. I grew up in a military town, so the local economy was dictated by Government budgets instead of consumer trends. I had no idea how good I had it, but now I’m not so lucky.

The Bears are back in town

Last week the bears awoke from their long hibernation and are back to wreck your accounts. In my last post I stated that this was an opportunity, and it still is, but it’s much larger than that. Temporary dips test our grit, and ultimately lead to quick profits. Bear markets are different. This market will slowly grind away at our core beliefs. Covid-19 will continue to punish us until it is contained. It will likely send us into a recession. Corrections like this are the reason stocks outperform, they are the cost of entry.

Here’s an example:

If you own a hotel in Florida, you have to be prepared for a hurricane. You’ll need insurance, an emergency fund, and a strategy for reopening when the skies become clear. That’s the cost of entry, hoteliers are prepared for this, and as an investor bear markets are the equivalent of a hurricane. Volatility and corrections are the reason stocks outperform bonds. It’s also the reason that bonds outperform money marked accounts. Extreme volatility and price declines will happen and we need to be prepared for them.

A look Ahead

There’s nothing new about this market. It’s going to go up and down, but in 10 years it’s going to be higher. It always has. Stay the course, and stay calm. The best is yet to come.