What I Learned From The 2022 Bear Market
9 lessons that still apply today
In a recent interview, I was asked to go over what I learned from the 2022 bear market. 2022 has been the worst year for the S&P 500 since 2008. It’s also the last bear market that investors have experienced.
2022 was also my worst year as an investor. As you can see below, that year stunk for me.
Why do I bring this up now? This is the first time the stock market has acted like it did in 2022. We’re in an environment now that’s similar to 2022.
It’s also a good reminder for me and it may be something that could even help you.
So what happened in 2022?
I simply tried to get too cute. I was trying to make up performance quickly. My focus was on the coming days and weeks. I had fallen into the trap of focusing on beating the S&P 500. Not investing how I know how and had done so well before. It wasn’t my normal long term investing approach, where I was looking years out. I wanted to make quick returns and it hurt me.
I was buying the growth stocks that were down the most. They can’t go any lower, I thought. Well that was wrong. They went even lower.
This came at the expense of selling positions in some stocks that I loved for the long term and had held for a long time. Yes, it was dumb. But I was trying to make up performance.
Late in the year, I stepped back and had to realize what I was doing was out of my comfort zone and not who I was as an investor. It’s not what I had learned and practiced over my investing career. I was upset at myself because I knew better than that.
Then I decided to buy stocks that I liked the best and wanted to hold for years. I resorted back to focusing on what I know best.
That resulted in me adding to some existing positions in companies that I had liked and started a position in some names that I still own today. Nvidia was one of those names and it has been a gigantic winner for me.
Looking back, I’m glad I went through this. I learned some valuable lessons.
Here are 9 lessons that I took away from 2022 and that still apply today.
Nobody knows. Be careful who you’re listening to. Nobody knows forsure what’s going to happen, or what the future holds. No matter how smart they seem. Remember, everyone likely has a different time horizon and investing objective/goals than you do. Play your own game.
Sit and do nothing. Somedays it’s best to just do nothing. Overtrading will hurt you more than it helps you. Don’t look at your balances. Just go for walk and unplug. You will feel much better.
Things happen fast. You will get surprised. Don’t be shocked and overreact. Tomorrow is always another day.
Bear markets are not easy. They’re not any fun and they test your patience. But stocks can’t always go up. Be prepared for an eventual bear market. Going back to 1928, a bear market occurs every 5.4 years.
Buy something. You likely won’t time the bottom perfectly. So just buy something. Never let a bear market or market crash go to waste. Take advantage. Years later you will say, I wish I had bought more.
Stock market losses aren’t permanent until you sell. Your statements showing balances mean nothing until you sell. Don’t get discouraged. Stay the course.
Hang onto your favorite stocks through the thick and thin. Instead of getting scared and selling them, buy more in bear markets. If you love a company and its future, this is the time to take advantage.
Always continue to buy. The best decision I’ve made in investing has nothing to do with individual stocks. It’s the fact that when I was a teenager, I started investing in a S&P 500 index fund and have continued to add every single month since regardless what the stock market or economy is doing.
Experience is how you learn. It’s your best teacher. You learn way more during a bear market, than during a bull market.
The Coffee Table ☕
I enjoyed Nick Maggiulli’s post called The Price of Peace: Why Diversification is Difficult, but Necessary. It’s such a good reminder about diversification. Not everything is always going up. You have to get used to certain things underperforming while others outperform. That’s diversification.
The NY Times had an interesting piece about if the office building market has bottomed. Signs of an Office Market Bottom: ‘The Worst Is Probably Over’ If you think about it, we’ve really heard very little about this after months ago constantly hearing about how it was set to crash.
Who said cash is bad? Warren Buffet’s Berkshire Hathaway has enough cash to buy 476 of the 500 S&P 500 companies.
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