How to Not Lose Sleep in a Bear Market

by David Ning · 9 comments

keep short term money in cash

In this bear market, not even the so called “smart money” are making money. I was watching Fast Money last night where they were talking about a few billionaire investors who literally lost tons of money on bad investments. A few included:

  1. Kirk Kerkorian lost $500 million with his investment in Ford
  2. Bill Ackman invested 2.4 billion in 9 stocks, many of which are bleeding money (Target alone lost 50%).
  3. Carl Icahn lost $750 million with his Yahoo bet (he probably lost just as much with his Motorola investment too)
  4. Aubrey McClendon bought tons of shares of Chesapeake Energy where he’s the CEO and he was forced to sell them all at its lows because of a margin call. Estimation of his lost is $1.5 billion.

And all this time, we thought we lost a lot of money.

While I have no doubt they are upset about the losses they incurred (a $1 billion dollar lost isn’t something you just forget about), I’m sure they aren’t losing much sleep over this because of primarily one reason – they don’t need the money anytime soon.

Some of us are extremely worried right now because we are afraid the money we have isn’t going to be enough. While it’s impossible to predict the future with 100% accuracy, it is safe to say that the stock market as a whole will come back up over the long run. Therefore, there’s really no need to worry about it if the money is in there for the future.

If there’s short term money in the market however, now is the time to think about slowly transferring it to safer investments. The reason has nothing to do with whether the market will go up or down but rather the fact that no one can predict what stocks will do in the short term. In a year from now, no one has any idea whether stocks will be higher or lower. There are many people that will take a guess at it and pretend like they know but no one can guarantee because there are too many variables that will affect the outcome.

Putting money that may be needed in the short term towards the stock market is too risky. If this is you, seriously think about whether the risk is appropriate and keep in mind that the whole economic crisis happened due to the lack of appreciation for risk management.

Look at the picture above. I’m sure it’s fun to fly down the canyon but not everyone believes it’s necessary to risk dying to do so.

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{ 9 comments… read them below or add one }

Carl October 23, 2008 at 10:39 am

David-

Great post.

If you have a plan stick with it. If you don’t, get to safety and count it as a lesson.

Carl

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Judi October 23, 2008 at 10:51 am

everyone wants to know what is safe. I’m thinking there is no place safe. Good thing I don’t have a ton

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Dividend Growth Investor October 23, 2008 at 2:14 pm

Great post,

it goes on to show you that there isn’t such thing as market experts or smart money. Unless an individual is willing to do the work to create a diversified portfolio that suits his/her own needs, they won’t be successful in investing..

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Mike Huang October 23, 2008 at 2:34 pm

It is very risky right now, but things may be better in 2009. Those million/billionaires won’t even flinch about their lost..

-Mike

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Dusty October 23, 2008 at 5:00 pm

And I was upset about losing a few thousands dollars. At least my losses have less zeros on the end.

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shadox October 23, 2008 at 8:36 pm

Well – it might be that these rich folks are relaxed because they don’t need the money any time soon. It might also be true that they are relaxed because there is a “diminishing marginal utility” (sorry for the fancy words) for money, i.e. your first $1,000 a month is very important because you use it to buy food and shelter; the next $5,000 a month are also important to you because you use it to ensure you have a decent lifestyle and save some money for a rainy day… after a while… say your $10,000,000 or so (maybe its $100M – what do I know) – money sort of loses its importance… I mean, these guys couldn’t spend all their cash if they tried… so I think the small guy losing savings in the market is feeling much more pain than the tycoon who is technically losing MUCH more money…

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marci October 24, 2008 at 8:29 am

I’ll skip flying down the canyon in any form :) Give me conservative ‘safe’ stuff any day.

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retirebyforty October 27, 2010 at 3:15 am

Yeap, I’m in for the long term. In 30 years, this dip will just be ancient history and if I keep socking it away the portfolio should be ok. Just don’t stop saving.

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Dave Gilliland July 11, 2012 at 8:33 am

I’m an insurance Agent in Louisiana for the past 35 years. I would like to make two points.
1) I work with retirees and the biggest problem for them is worry… will I have enough money, will it last as long as I do etc. I recommend Indexed Annuities with Lifetime income riders because it takes care of their worries.
2) 1973 Louisiana Tech University, Economic 101, the first day, the first words out of the professor’s mouth… “making money in the stock market is easy… you buy low and sell high”. The point is, you can not “Hold”. You have manage your stock protfollio. Most do not do this. Consider a moment that if you have a 50% loss, it will take a 100% increase to get to even. There is a lot of “goodie” left on the table.

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