Bear Market Survival Guide
If You Do This One Thing, You Will Avoid Getting Crushed In A Bear Market
Bull markets are wonderful things.
Any strategy, no matter how ridiculous, tends to “work.”
Everyone is making money.
You can be highly undisciplined and still do extremely well.
You can make a lot of mistakes and still make great returns.
Bear markets are the exact opposite.
They will crush you if you are not disciplined.
And there is one “mistake” that every investor loves to make that boosts returns in a bull market but that will cost them dearly in a bear market.
Considering what’s ahead for stocks, that’s precisely the kind of market you’re going to be facing for a while.
But you don’t have to pay the heavy price for making it.
Bear Market Rule #1: NEVER Average Down
The mistake I’m talking about is buying dips and averaging down.
Averaging down is a simple concept.
For example, if you bought 100 shares of Amazon (AMZN) at $110 and it dropped to $90 and you bought another 100 shares, you would now have 200 shares with an average cost of $100.
Now Amazon would only have to recover 10% instead of 22% to get you back to even.
Don’t get me wrong, averaging down makes sense on paper.
You should like a stock that’s cheaper and the chance to average down.
But in the real world, averaging down is one of the easiest ways to underperform the markets in the long run.
The reason behind this phenomenon is simple.
Stocks and sectors tend to move in long and sweeping cycles over long periods of times – usually multiple years.
Averaging down again and again is the way to really lose big when you're on the bad side on the bust side of a boom.
As a result, you risk making huge losses by buying stocks that go down and these losses will more than offset the gains made those times these buys do bounce back because of simple math.
Consider a 20% on a stock. It is where $1,000 turned into $800.
In order for you to get back to even at $1000, you need a 25% gain on the $800.
That is doable.
But when you average down, you risk getting caught up in a stock that’s in a structural bear cycle.
If that’s the case, the risk of big losses expands and they will leave you in a spot it could take years to recover from, if ever.
Consider taking a 50% loss.
That requires a 100% return just to get there.
And if you get caught averaging down over and over again on something and eventually lose 90%, it will take forever to get back to even.
Because a 90% requires a 900% gain to recover.
And there are many more 90% losses out there to be had than a 900% winner.
This is all why the world’s top investors stick to the rule of never averaging down. Ever.
If you follow this rule and do nothing else, you will avoid many of the most crushing losses a bear market can deliver, be better positioned after the bear market is over, and be a far more successful investor over time.
Conclusion: Best Bear Market Advice
Never average down.
Never, ever average down.
