What To Do if You’re Attacked by a Bear (Market)

Written by Rachel Denning for www.InvestTide.com

“Buy and Hold” have replaced “I love you” as the three most popular words in the English language.

Jim Grant

A national park brochure advises visitors: “If you are approached by a bear, try to look big. Be forceful, but not aggressive. Keep your pack on, wave your arms, talk loudly. Back away slowly, but DO NOT RUN. If a bear attacks you, assume the fetal position and protect your vital organs.”

This seems to be the standard procedure for most investors who are facing a bear market. Try to look big, be forceful. Keep your pack on (don’t sell anything, in fact, buy more), wave your arms, talk loudly about how it will go back up, sometime. DO NOT RUN. If the bear attacks your retirement, assume the fetal position and protect your vital organs.

I’m sure you’ve heard the philosophy preached from every one including your broker and his dog- buy and hold, dollar cost average, hold for the long term. Who hasn’t heard that? It’s an investing article of faith that if you hold for the long run, you can’t fail to profit in the end. Or can you?

What is the definition of ‘long term’ anyway? How long is it? The answer may be surprising. In fact, you might have to be Methuselah to reap the profits of the long term. Brilliant economist, who unfortunately wasn’t brilliant enough to avoid losing millions in the bear market of 1929-1932, said this: “In the long run, we’ll all be dead.”

Acres of cemeteries were filled with investors who died waiting for their stocks and mutual funds to break even after the Great Decline of ‘29. Seniors who invested in 1929 died long before their heirs ever broke even on their inheritance.

One middle aged man got in near the top in 1929, and held on for the ‘long term.’ He held on through Herbert Hoover, four terms of Franklin Roosevelt, Harry Truman, and two years of Eisenhower. Then it was time to retire. The capital gains he had to show for all his years of patience? Zero. Zilch. Nada.

Some consider the Great Decline to be a financial fluke, and that the market could never again experience an 89% loss like it did then. However, year-to-date, from it’s high in October 2007, the S&P has lost 52% of it’s value (in one year’s time).

Even when the market is not extremely bearish, buy and hold for the long term is still not the best philosophy. Consider these examples with the Dow:

• Climbed to 194 in 1937. Twelve years later in 1949, it was lower than that
• Topped out at 685 in 1959. Sold for less 17 years later in 1974
• Record territory at 734 in 1961. Sold for exactly the same price 19 years later in 1980
• It reached 11,500 in 2000. Today, almost nine years later, it just hit 8,000

It has been figured that it takes seven and a half years for stocks purchased at the onset of a bear market to return to a break even status. In a worse than average bear market (like the one we’re in now) it takes even longer.

Buying and holding is far from the safe investment strategy that it is made out to be. It works, in bull markets. It works in mild bear markets, that are quickly reversed. Other than that, it is risky, extremely risky.

You’re most likely holding on to stocks that are exceedingly overpriced, that won’t return to their previous highs for a decade or more. This is risky if you’re planning on a road trip in the RV in ten years or less.

Even Warren Buffett, king of investors, has a point at which he’ll sell. In 1969, stock reached an extravagant high, Buffett found nothing worth owning, so he sold everything in his portfolio, and gave his partners their money back. For the years during the bear market that followed, Buffett was in cash. He didn’t return to stocks until four years later, when he got an excellent price.

The unfortunate ones who ‘held for the long term’ had to wait through four presidencies to see a profit. In the meantime, Buffet became a billionaire.

Now ask yourself, if Warren Buffet has a selling point, don’t you think you should hav a selling point? Buy and hold, yes, if and when it makes sense. But when you’re under attack by a viscous mama bear (market), can you afford to hold on to the bitter end? Will you even live that long? The best advice under such circumstances is to cut your losses and run!

An example of how well this strategy works is illustrated by the story of a client. He had a 401(k) retirement plan through his company. He had already lost some money in it since the start of the decline a year ago. He was advised through our personal coaching program to ‘go to cash’ in his retirement, meaning that he sell his stock holdings and keep the money in cash in his 401(k) account.

To date, he has saved over $72,000 in losses. These are losses he would have incurred had he continued to cling to the ‘buy and hold’ mentality. Many of his co-workers continued to hold, and have incurred substantial losses as a result.

He is now learning and applying strategies that he can use to make money during this volatile bear market. Having saved $72,000 in losses, and now learning strategies that will create more money while others contine to lose, now places him light years ahead of his peers.

Many believe that it is too ‘risky’ to exit their stocks when the market is dropping, but really, which is the riskier philosophy? To hold on out of fear, or to take action that results in avoiding losses and creating profits?

Action Steps

1. Realize that “a Dow that goes up must come down.” Bear markets will happen, and most likely when you’re ready to retire! Decide to learn strategies that allow you to profit from bear markets.

2. Commit to using a buy and hold strategy only when it makes sense. Be flexible enough to change that strategy when the market changes.

Problems are Opportunities in Disguise

“Life is a grindstone, and whether it grinds you down or polishes you up is for you and you alone to decide.”

Everyone makes mistakes and everyone has problems. It is an inescapable part of life. Some people believe that they will be happy once they eliminate their current problems, but the only time you won’t have problems is when you’re dead! Having problems means that you’re alive. In fact, some say that the bigger the problem, the better the person.

Most people view having problems as a negative thing, but it doesn’t have to be this way. We can choose to change our view on the world and see our problems as opportunities. If you have never faced an extremely difficult problem and overcome it, or if you’re in the midst of one, you may have a difficult time believing that problems are opportunities in disguise.

Hitting Bottom

In 1974, Mark Victor Hansen seemed to be on top of the world. He was doing well financially and the world was his oyster. Then the business he was in was adversely affected by economic conditions, and the next thing Mark knew he was checking a book out from the library entitled How to Go Bankrupt by Yourself (he couldn’t afford an attorney).

At his all time lowest moment, he felt like a negative 12 on a scale of 1-10. He was physically ill, tears welled up in his eyes. He climbed into a shell. He felt totally dejected and rejected.

He began unloading toilet paper off railroad cars in New York’s freezing winter, making only $2.14 an hour. He could only afford to put $0.25 into his gas tank at a time. His self esteem was totally trashed. He had hit bottom.

But looking back, he realized that hitting bottom provided his greatest opportunities. It was a turning point in his life. He realized that at that point, the world was totally open to him. He had no job to cling to, no bills, no debts, no obligations. The world was wide open to him. Everything was potential.

Burning Your Bridges

Today Mark Victor Hansen is co-author of the Chicken Soup for the Soul Series, the largest all time best-selling books in history, with sells way into the billions of dollars. He owns a lovely estate and several substantial businesses, and influences millions of people. A friend told Mark later, “You burned your bridges, you had to succeed!”

He thought that his financial disaster had been a problem, but in reality, once he hit bottom, in only turned out to be the start of a new and better life. Like the Phoenix rising from the ashes, his ruin turned out to be the birth of his new beginnings. His problem was really a life-changing opportunity.

Mark is the first to tell everyone that if he can do it, you can too. You can achieve wealth and financial independence. It’s available to everyone that believes they can achieve it.

Many of us face problems that are even worse than financial difficulties, for example, issues with physical appearance, ‘handicaps’, emotional/mental stress, relationship strains or health matters.

None of the challenges need to equate to living a less than extraordinary life. As an example, we can look at the story of Malcolm from Canada.

Ugly Doesn’t Matter

Malcolm had one of the most mangled faces that you’ve ever seen. He had stitches all across his face, one eyelid was stitched shut, as well as three-quarters of his mouth.

He and his fiancee had been walking in the woods. Somehow they found themselves between a mama bear and her cubs. The bear grabbed hold of his fiancee, and Malcolm tried to stop the bear, whereupon the mama bear crushed every major bone in Malcolm’s body. She then almost literally ripped his face off, back toward the scalp.

It was a miracle that he lived, and he underwent restorative surgery for the next eight years. The doctors did all they could do, but it hadn’t helped much. Malcolm saw himself as an ugly person. He didn’t want to come into contact with society.

He decided to take his own life by throwing himself and his wheelchair off the tenth floor of his rehabilitation center. He was ready to push himself over when his father, who was listening to an intuitive voice, came running up and stopped him just in time. He said, “Malcolm, every human being has scar tissue deep inside him somewhere. Most of us where it under a smile, some cosmetics and nice attire. You get to wear yours on the outside, but we’re all the same.”

Later, Malcolm began reading books and listening to audio tapes. He heard “Setbacks are given to ordinary people to make them extraordinary.” He decided that he was an extraordinary person. He wrote down what he wanted to do, what he dreamed about.

He got a job as an insurance salesman- a job where he had to expose himself to people everyday. A few years later he became the top insurance salesman in Vancouver.

Malcolm realized that it wasn’t his looks that were his challenge. It was how he viewed and felt about himself. His physical challenge was an opportunity to discover who he truly was and what he was capable of doing. Once he began to see what he ‘really’ looked like, his deformed face became irrelevant. He was able to break through his fears and achieve amazing results.

The World is Filled with Opportunity

No matter what challenge or problem you face, there is someone who has faced or experienced similar things. There have been two outcomes, those who were defeated, beaten and destroyed by their problems, and those who chose to not give in and give up, but allowed their problems to be turned into opportunities to grow and become a better person. Every problem contains within it the seed of an opportunity.

“But I’m not like them,” you might be saying to yourself, “I’m not a ’super-achiever’.” To believe that you can’t do what others have done is to sell yourself short. You have more potential within you than you could use in 100 lifetimes. YOU ARE GOOD ENOUGH!

Action Steps

1. Imagine that your biggest challenge or problem has been sent to you as a gift to help you learn something valuable. What might it be?

2. We all make mistakes, in fact it’s estimated that 70% of our decisions will be wrong. Don’t beat yourself up for your mistakes. Instead learn from them and move on.

3. The definition of insanity is doing the same thing over and over, but expecting different results. We all make mistakes, but we don’t need to make the same ones over and over. Write down the lessons you’ve learned, and then try not to repeat them.

Thoreau said, “Go Confidently in the Direction of Your Dreams, Live the Life You’ve Imagined…”

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“If one advances confidently in the direction of one’s dreams, and endeavors to live the life

which one has imagined, one will meet with a success unexpected in common hours.“

Success is Defined as the Progressive Realization of a Worthy Ideal

Maybe that ideal is to be a wonderful mother, father or grandparent, an inspirational teacher, an excellent friend or entrepreneur. Your ideal might be an athletic or physical goal, spiritual enlightenment or financial independence.

Whatever you goal may be, have you wondered what stands between you and the life you’ve imagined? You may have attained success in some areas of your life, but is there more you would like to do or be?

Why are some winners at the game of life, while others never come near their ideals?

It doesn’t have to be that way.

We Can All Be Winners

You can be a winner. You can be successful. Your relationships, health and financial wealth can be all that you want it to be. You can achieve any goal or dream that you have for yourself- if only you know how.

Learning how to achieve your ideal life can be one of the most important things you do. Brian Tracy says that “The only difference between successful people and unsuccessful people is that successful people know more than unsuccessful people.” They’ve learned the skills that allow them to do and be more in life.

Do You Know that There Are Laws of Success?

If you drop a rock from you hand it will fall to the ground. If water reaches 32 degrees it will freeze. These are indisputable laws of nature, and by knowing them you can work with, instead of against them.

Did you know that there are also laws for success? There are laws that explain why some succeed while others fail. There are Laws of Health, Laws of Spirituality, Laws of Relationships, Laws of Money, Laws of Wealth. By learning these Laws and applying them in your life, you can achieve any goal or desire.

You Are a Potential Genius

Michael Jordan was once asked, “What is it like to be born with so much natural talent?”

He replied, “Everyone is born with talent, but ability takes hard work.”

You’ve probably heard it said that the average person uses less than 10% of their brain (some say it’s more like 2%). It’s estimated that we have over 60,000 thoughts a day. For most people, 90% of those thoughts are the same thoughts that they had yesterday.

You are a potential genius, but you have to unlock it. You don’t believe that you’re a genius? You have already had proof of it throughout your life. Every so often you’ve come up with a great idea, or had a great insight, or made a great decision. That was your inner genius at work.

The only difference between you and a recognized genius, is that recognized geniuses use their inner genius all the time. It’s like knowing how to use a computer or drive a car, it’s a skill that can be acquired. You’re job is to learn how to do it all the time. Just like learning how to ride a bike, it gets easier and easier until it comes naturally.

One Piece of Information Can Transform Your Life

You might have most of the pieces for success in place, but you’re missing one critical piece that holds you back, and maybe you’re not even aware of it. If you continue to read, study, talk to people and take courses, you can pick up, sometimes just one critical piece of information, that will make all the difference. It could give you a special insight that would allow you to make a decision that could change your life.

Brian Tracy says that “Continuous learning is the minimum requirement for success in the 21st Century.”

Don’t Waste Your Life

You have more potential for greatness in you than you could ever use in 100 years.

Chris Hoy, Olympic Gold Medalist, said after winning in Bejing, “I’ve always had the power and the speed, but it’s all about how you use it.”

You too, have the power, speed, genius, and latent ability to achieve any dream and fulfill every desire. Don’t waste it.

Action Steps

To get what you have never had, you must do what you have never done.

1. Start today to do something you have never done before that will bring you closer to achieving a dream. Begin reading a book, exercise, sign up for a course that will teach you a new skill.

2. Make a commitment to greatness. Decide now that you will make a difference with your life. Go for your dreams.

3. Dedicate yourself to continuous learning. Input determines output- be sure that the input your allowing in your life is of the highest quality.

Rachel Denning

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