Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

BUNK 9

MAKE SURE IT’S A BULL BEFORE DIVING IN

Suppose it’s a bear market. The big, the bad, and the ugly one! Maybe you’ve stayed invested throughout—that sure hurts near term. Plus, bear market volatility is huge and scary. Should you bail, wait out the end, then get back in when the signs are clearer? (Another question: Are you that good a market timer?)

Or maybe you’re out and know you need to get back in. But when? All that whipsawing is beyond terrifying. Better to just wait until it’s certain the bear market is over, a new bull has begun, and all is clear, right?

No—as counterintuitive as it seems, risk is actually least just when sentiment is most black—right as a bear market hits its lowest depths. Clarity is one of the most expensive things to purchase in capital markets and is almost always an illusion.

No one can perfectly time a bear market bottom. Someone telling you otherwise is deluding himself (or herself) or trying to mislead you (see Bunk 11). Or got lucky once. As painful as the wild wiggles of a late bear market are in the near term, you don’t want to miss the start of a new bull market. New bull market returns are super swift and massive—quickly erasing almost all late-stage downside volatility. If you suffer the last 15 to 20 percent of a bear market, it is still, almost certainly, small compared to the subsequent initial up-leg of the next bull market.

Think of a bear market like a depressed spring. The more you push down, the bigger the bounce. It works ...