Bear Markets Create Millionaires

bear - 1

At this stage of the game, I still believe that it is way too early to declare that we are officially in a “bear market” (even though a sh!t ton of data would support that). Nevertheless, the continued market selloff into this week has spooked a lot of investors… And rightfully so.

I’ve always believed that what goes up must come crashing back down… at some point. There is always a reversion back to the mean, and markets don’t go up or down in straight lines forever…

For the life of me, I will never be able to understand how anyone can be a permabull or permabear… The only thing that I am is a permarealist!

And I know this much — Anyone who wants to become financially independent very early in life (before 35) and a millionaire needs to relish brutal bear markets.

As great as a bull run feels, fortunes are in fact made by “buying low and selling high”.

How do you suppose you “buy low”?

Well, quite frankly, you need a bear market to be able to do that…

Buying the Dips

Most everyone has been conditioned to “buy the dips”… In a rising bull market, this strategy works brilliantly. At the start of a bear market, it’s probably the worst thing that you can do…

Catching a falling knife…

That’s not how you amass fortunes!

Yes, it’s true that I’ve been catching a ton of falling knives with my gold trade, but I would argue that my strategy there is totally different from the conventional approach…

In theory, gold should be anti-correlated to the rest of the markets, and even though that isn’t evident at this moment in time, when the fear becomes paramount, I’m convinced that it will decouple from the broader markets…

Not only that, but the fact that I’ve been dollar cost averaging (DCA) into an asset class that was already down 80% to 90% off its most recent highs before I got in gives me full conviction that a reversion back to the mean can only be found in the upward direction, which can’t be said for the S&P 500.

You want to “buy the dips”? Find an investment that is absolutely hated and in liquidation… Seldom does the popular narrative ever work out for the retail investor…

Hoarding Cash

Anyone who was out of index funds and hoarding cash last year was criticized for being a total idiot… As the argument goes, “Cash doesn’t earn any interest… I want my money working hard for me all the time!

If you are a permarealist, you will understand that the game of investing isn’t always about generating the most offense… Sometimes, it’s far more lucrative to fixate entirely on shoring up the defense.

Yes, cash doesn’t earn you anything… but it doesn’t lose you anything either!

Inflation does erode away cash, sure, but that doesn’t happen overnight! It is asinine to assume that a prudent investor who is parking their cash on the sidelines is “stupid” enough to never convert it back into assets such as stocks, or real estate.

That is NEVER the intention when someone elects to go majority, or all cash!

Just look back to the financial crisis of 2008… When stocks and real estate were crashing down, who do you think came out ahead the most? The buyers who had ample cash and could snatch up all the cheap merchandise for pennies on the dollar!

I experienced a market crash very early on in my investing career… I also lucked out and was able to start buying aggressively at, or close to the bottom… I gotta say, NOTHING beats shopping at the lows when no one else is interested! You literally have ZERO competition out there!

And let me tell you, it is VERY POSSIBLE to go from ZERO to HERO in the span of one market cycle… I literally went from having a net worth of $0 to over $1,000,000 in eight years (2008-2015)… Many investors who I know did far better than me.

Lately, I’ve been spending a good amount of time interviewing other freedom fighters. What’s the common theme that I’ve noticed? Everyone who has achieved financial freedom (or is on the cusp of it) amassed a great bulk of their wealth by buying at the depths of a brutal bear market…

The popular narrative will always be to “dollar cost average” and to “stop trying to time the markets”… “Let time in the market be your best ally”…

Yes, those strategies will work for the average retail investor looking to retire comfortably at age 65.

But if you want early FI, you’re gonna need to do a little better than that!

Having once before experienced the potency of buying at the depths of a brutal bear market, I do know for certain that I will be able to achieve perpetual financial freedom if I am ever granted that same wonderful opportunity again (I’m pretty close now).

There’s a good reason why almost everyone I know is cash strong right now… One of my investment buddies has over $300k ready to go! He desperately wants to buy into Class A rental properties… on his terms! At the rate things are going, he might just get his wish…

I can’t say that my tune is much different from that… I’ve got over $120k just waiting for a willing partner to tango with.

But I’m not out chasing for pennies… The retail crowds can have these minuscule dips…

 

When foreclosures, REOs, short-sales become a “dime a dozen” again, it is only then that I’ll know it’s time to start actively looking for deals again.

 

I’m trying to amass my second million…

 

And you really need a brutal bear market to be able to do that…

 

Fight On!

Print Friendly, PDF & Email
Sharing is Caring:

15
Leave a Reply

avatar
8 Comment authors
BeSmartRichFI FighterJonIncome SurferNo Nonsense Landlord Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
Financial Samurai
Guest

The good times seem to have come to an end. Liquidity is key!

I definitely wouldn’t quit your job now.

JT
Guest

Liked the article! I am really considering hoarding some cash away since I have been the victim of trying to catch the “falling knife.” 300k/120k cash would be AMAZING to have on standby. I’d be happy to get to 10k. Have a great weekend!

JT

My Dividend Pipeline
Guest

FI Fighter,

Right now, I have a ton of cash on the sidelines as well. I sold 90% of my stocks last Oct-Nov after going through a divorce. I’m certainly not a market timer, but am happy to be sitting on 85% cash right now. I just recently started nibbling my way back into the market and would love to have a 2000-2002 multi year bear market. It gave many opportunities to build positions. The 2009 bottom was deeper, but seemed to rebound off the lows much faster. In any event, let the bargain shopping begin!

MDP

No Nonsense Landlord
Guest

The issue with gold is that we are in a deflationary spiral. Despite all the money governments have printed, prices are still falling.

My portfolio/NW went from a small sum in 2008 to a solid sum with multiple properties paid off. When a property is paid off, you can lock in the return of the previous underlying mortgage. While 5.5% is not a big return, when you have a solid 7 figure amount in it, it is a decent sum.

Jon
Guest
Jon

How have gold and mining stocks performed in the last two bear markets? I think down along with everything else…

Income Surfer
Guest

Completely agree on the need for cash Fighter. We have 65%-70% of our portfolio in cash right now. I’ve made a few purchases lately, like Union Pacific’s stock, but by in large we are waiting for better opportunities. I look a lot of criticism from readers over the past 18 months…..and I was early….but I WASN’T trying to time the market, I just didn’t see a whole lot that I thought was worth buying. Hoping that changes soon.
-Bryan

BeSmartRich
Guest

I just started building cash position lately. Quite frankly, I am very jealous at all the US income earners as our Canadian dollar has been hammered really hard lately. There are so many bargains in Canada and the bargains will get greater.
Cash is the king now in this bear market.

Cheers!

BeSmartRich

Close Menu