Bear markets, like large grizzly bears, are often associated with fear and running for safety. These feelings are often exacerbated by fateful headlines with dramatic wording.
But for long-term investors, bear markets don’t have to be scary. They can have several benefits.
Benefits of Bear Markets
First, they produce negative expectations for the future. According to a recent survey by the New York Fed, 2/3 of consumers expect flat or lower stock prices in the future.1 And negative expectations influence many investors to sell.
And this selling produces better valuations. If we liked our investments last year, we ought to be thrilled that we can reinvest or even buy more at these lower prices.
That brings us to the greatest benefit of bear markets. The occasional stock market sale. In July, we saw US Growth stocks on sale by 25%. Emerging Market Stocks were marked down 21%. And even bonds were 10% off.2
Whenever we face the threat of a bear market or find ourselves in one, we first need to step back away from the noise. That will help us gain a better perspective. It will help us notice the various investment sales and opportunities that abound. And every investor says they want to buy low. A bear market provides that opportunity.
© 2022 The Behavioral Finance Network
1. Survey of consumer expectations by Federal Reserve Bank of New York. Reported by Wall Street Journal on July 16, 2022
2. Performance YTD as of July 22, 2022. Information obtained from Morningstar using Morningstar category performance. Large growth, diversified emerging markets, and intermediate core bond were the categories used for the above performance.