Bogleheads

[Rick Ferri]

This is a positive post.

I started a list below of the benefits of a bear market in stocks. Why am I doing this? To raise optimism, or rather, to remind people that the world is not ending and that this current financial crisis will pass. There are so many doom and gloom conversations being started on this forum that I felt the need to look past the short-term and reiterate the fact that all bear markets eventually end - and this one will too.

Here is a start. The benefits of a bear market are:

1) You can buy much more stock for the same dollar invested.
2) You learn what your true risk tolerance is.
3) More media attention on the markets means less media attention on the election.
4) Lower interest rates helps people buying homes or refinancing.

Please add your own POSITIVE thoughts on the markets or on the economy. Pessimists, please do not post. You have have plenty of doom and gloom conversations to post negativism.

Rick Ferri

[Hondo]

Bear markets help you to understand and appreciate asset allocation.

[learning]

Another positive of a bear market:

When it ends, we're reminded, once again, that when doom and gloomers shout "this time it's different" -- it really isn't.

[gummy]

Things could be worser, eh?

[ddb]

A bear market makes you appreciate high-quality short-term bonds, and reminds you that you probably shouldn't take on credit risk in your fixed income holdings.

A bear market greatly reduces the posts on this board asking about allocations to emerging markets, small-cap value, etc. (i.e. it quiets down the performance chasers).

A break market gives us a video like this (warning: explicit language).

- DDB
_________________
"I know that your friends are my friends and, uh... I've thought about that. You can have 'em" - PB

[NoMoreInvestingExcitement]

Hi Rick:

Thanks for your optimistic list. In general I quite agree with you, at least for folks in the accumulation phase of their investing lives. Not sure you could convince a less-than-well-heeled retiree that a bear market is good for her, though.

Anyway, my further two cents:

[G12]

A bear market gives an equity investor who holds cash in their AA opportunities to buy cheaper stock without selling bonds or other investments. Low interest earnings are a small price to pay for this future opportunity.

[Robert T]

.
Four more…

The benefits of a bear market are…

1) …you can tax-loss harvest to improve future tax efficiency
2) …a first hand demonstration of which asset classes provide the best hedge for these types of market conditions
3) …a clear demonstration that smart people can often get it badly wrong
4) …opportunities to shift into ‘better’ investment products at lower cost (lower costs basis).

Robert
.

[PiperWarrior]

Here is another one: Tax loss harvesting.

[Ria Rhodes]

..pushes more people to shop at Costco and WalMart of which I am a long term investor.

[sschullo]

Rick,
I have a slightly different approach, it’s more personal rather than market driven:
1. Reassess employment opportunities, went back to school learned more skills and credentials to get promoted.
2. Worked a little longer and harder, took employment risks to earn more money and actually do what I love.
3. Reaffirmed my values of massive self discipline, stay the course, not panicking.
4. Acknowledging that only mistake I made was not diversifying and painfully learning from that one mistake that cost us big time.
5. Humbling acceptance that BALANCE in one’s life and the life of a country is good for long term grow and prosperity.

BTW, Interest rates for home buyers have actually went up slightly according to news reports. Of course, who believes the news?

Steve

[Joe S]

Corrections are good. Bear markets, hmmm. It all depends on the time frame.
You mean like the Great Depression? Or the 1970s?
Yeah, those were the days.

[billern]

bear markets keep the equity risk premium high.

[DRiP Guy]

Shakes out weak hands and speculators. Nature's way of doing a little economic system pruning, which helps long term healthy growth.

[ken250]

Maybe a slight variation on what's already been posted...

When the market hits a patch rough enough to generate the concern, fear, doubt, etc. that the current market is, valuations can get fuzzy...this revives the value premium.

Yes!

[bob u.]

Don't know whether any retirees have yet to respond to Rick.

As a retiree, this market downturn (which, by the way, remains a blip compared to others I've experienced) has not affected our lifestyle in any way. There's just nothing like the predictability and reliability of annuity income together with all the other bells & whistles that make up an asset allocation plan.

Never underestimate safe sources of income. Bob U.

[Sbashore]

Bear markets lower valuations, thus boosting future long term returns. Actually I was getting tired of my portfolio being in a narrow range of value. Now as it declines, I see things starting to move out of that range, so I know that the future holds a higher value portfolio for me.
_________________
Steve
Semper Fi

[pkcrafter]

dripguy wrote:

[Easy Rhino]

I'm looking forward to the opportunity to simultaneously tax-loss harvest AND fix up my asset allocation in my taxable account.

[retiredjg]

Thanks, folks, for the tilt back to the positive side. And thanks to Rick for getting it started. jg

[DRiP Guy]

Teaches flippers that homes are to live in, not to arbitrage by the dozen using other people's money.

[InvestingMom]

Yin and the Yang.

But seriously, it reminds us to appreciate it when times are good (and when you think about it, times are not so bad anyway...from a financial perspective...if you have done your asset allocation homework correctly.)

[Joe S]

Optimists?
Pessimists?
Silly language.
How about realists?
Despite all the historical "scientific" studies and simulations, no one knows what will happen to the long-term economy as a whole, because we are, as is sometimes the case, in uncharted waters.
Though maybe you'd like to ask those losing their job or house if it's really such great news.
If being risk-averse is "pessimism", count me in. Based on political and economic realties, I figured this was coming, and starting in early 2001, put about half of my stock holdings into the Vanguard total international fund, then the rest to domestic indexes and stocks with a heavy tilt to oil and defense. I didn't guess perfectly, but it has done OK - so far.
I'm now invested 25% in the market, 75% in bonds and cash, with sufficient capital for retirement and SS, so it may be no big deal to me. (The wisest advice you can get is Swedroe's: Take no more risk than you have to. So I should probably be out of the market even more.)

[Blackhawkzone]

6) money can be made on the short side thanks to inverse style etf's.

[Taylor Larimore]

Hi Rick:

Today's Wall Street Journal lists the 1 year return for various Dow Jones Wilshire indexes.

+07.4% Total Bond Market

-03.2% Growth
-06.6% Large Caps
-07.6% Total Stock Market
-09.3% Mid-Cap
-10.9% Large Cap Value
-11.4% Value
-12.2% Small Cap
-15.2% Small-Cap Value
-22.1% Micro Cap

Another benefit: We learn that stock diversification does not protect against stock market declines (it can actually hurt). Bonds and cash are the best protectors.

Best wishes.
Taylor

[BigD53]

My Vanguard Target Retirement Income fund is down, what, 1.5%? Maybe 2%?

No worries here, mate! I planned ahead. I knew going in, that my tolerance for risk was lower than a snakes' belly!

I have much more bonds than I do stocks. So, I may have to work 'till I'm 70. But things could be much worse.

[Opponent Process]

[vb]

Some of my own personal goods from the last bear market...

1. Instead of dining out, had potluck get-togethers & bonded with friends through it
2. Appreciated the value of a bagged lunch
3. Instead of going out, stayed in and played old-fashioned board games
4. Reassessed my job, my career, my life
5. Made longer-term goals - applied for a masters degree program and just completed it, along with a career change; started playing tennis, won my first singles tournaments last year
6. Just learned more about investments, as the excesses were worked out
7. Worked out my own non-financial excesses
8. Enjoyed the weather and everytyhing else that is free

I was 25 when the last bear market hit.

[hamishdad]

Bear markets give people the will to live long enough to get their money back.

[Opponent Process]

given the choice between bear market now vs. next year or next decade, we should take it now. the sooner, the better; a mathematical fact.

if you're in retirement, you're enjoying some nice bond returns.

so the system works, as long as you start early.

[Unormal]

[gbs]

A bear market enhances the value on an unexpected payroll increase !

gbs

[unclemick]

Fair winds or foul - the Norwegian widow always knows her current portfolio yield.

heh heh heh -

[FinanceGeek]

Exiting 2008 I'll have done enough tax loss harvesting to not pay capital gains tax for many many years to come...

So how does one arrange to reclassify more "ordinary" income into capital gains to offset these?

[grumel]

- less time spent on trying sucesless to talk people out of ridiculous asset alocations like 70% china funds

[market timer]

[bob90245]

Another benefit of a bear market:

If you've had your eye on buying a great mutual fund, but disappointed that it had closed its doors to new investors, chances are that it will soon reopen during this market decline as investors pull their money out in fear.

[jh]

...

[Rodc]

Misery loves company; you have lots of people to commiserate with.
_________________
"all standard caveats apply"

[jh]

...

[matt]

You can laugh at the perma-bulls who said the good times would never end.

[haban01]

1.) First priority is to pick up more shares on the cheap side! Continue to invest through good and bad markets!!

This is actually my first "Bear Market" where I have some "skin" in the game, so to speak. I had a portfolio worth an once or two of gold back then!! This is great for the young investors that have started within the past 5 years!!

2.) Stay the Course, Don't just do something, Stand There!! (Jack Bogle


Best Wishes to all! This too shall pass!!
_________________
Eric Haban

"Stay the Course"
"Press on Regardless"

Wisconsin Diehards Chapter Coordinator

[SpringMan]

Bear markets build character.
What doesn't kill you makes you stronger.
You can't buy back your youth when you are old.

Happy St. Patrick's day
_________________
Best Wishes,
SpringMan

[DRiP Guy]

Proves the sagacity (or lack thereof) of Market Analysts:

[Random Musings]

Bear markets can cleanse excess speculation.

Bear markets are great for young people in the accumulation phase.

Bear markets make one respect what risk is all about.

RM

[PatrickS]

[rpike]

Now I can convert more shares of my Traditional IRA to Roth for the same amount of taxes.

Another Rick

[SpringMan]

[sschullo]

Bear markets make immature investors (active, performance chasing, following and purchasing high priced newsletters and watching Jim Cramer and other Wall Street mucky mucks) into seasoned investors.

Bear markets make you feel the pain of your mistakes, make corrective actions and help you learn that you the only one responsible for your decisions. Pain that was a result of your mistakes, eventually turns into wisdom. It doesn't happen any other way. There are no shortcuts. You have to experience this through a bonified bear market.

In the short term, it is terrible, horrific experience, but if you keep at it by reading, talking to people and learning more, the terrible times turn into the greatest benefit of all---Wisdom and perhaps a little more money the next time around.
Steve

[Trev H]

Small Value outperformed the Market 5 years in a row after the 73-74 Bear ended.

Small Value outperformed the Market 4 years in a row after the 2000-2002 Bear ended.

Maintaining my SV Tilt

Trev H