Get Up When the Bear Market Knocks You Down

 By Dr. David Eifrig, editor, Retirement Trader

Tyrell Biggs had a plan.

The agile heavyweight boxer would circle his opponent, get him off balance with some stiff jabs, then take that opportunity to swing bigger punches. And he'd use his footwork to pop in and out, getting in shots without taking much damage.

Biggs had won an Olympic gold medal three years before and had gone undefeated since going pro. But his plan had a problem...

It needed to be good enough to beat Mike Tyson in his prime.

It was October 1987. Tyson had ripped through 31 opponents with 27 knockouts and no losses. If anything, Tyson looked too perfect. His speed and power allowed him to pound his opponents into the ground.

Leading up to the fight between Biggs and Tyson, the media wondered if Tyson had met his match. But when a reporter later asked Tyson for his thoughts on Biggs' strategy, he coined one of his many legendary quotes...

Everybody has plans until they get hit for the first time.

And that's precisely what happened... Tyson quickly slammed Biggs, left him physically dazed, put him on his back foot, and proved all his planning worthless.

In the seventh round, Tyson sent Biggs to the mat with a left hook. It took Biggs to the count of nine to recover. Tyson immediately blasted Biggs with another hit and the referee called the fight for Tyson.

Lots of folks use Tyson's quote to say only that planning is hard. But for investors, there's an even deeper meaning...

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There's something special about getting hit in the face.

A physical fight is an incredibly intense experience. Even for professionals, emotions run high. Your heart rate accelerates, and your body flushes with adrenaline.

When that first fist crashes in, the body can kick into fear mode. And unless you've carefully trained yourself to handle it, you can spiral into pure panic. Rather than watching for incoming threats and reacting calmly, a fearful fighter can throw wild punches and get themselves into trouble.

That's why a trained boxer, wrestler, or military veteran can have such an advantage over a stronger, fitter opponent. They've learned to control their fear response.

Tyson punched hard enough to raise the fear response in an Olympic gold medalist. Biggs' plan was to bop left and right to keep Tyson moving. But Tyson's first big left to Biggs drove him into the corner about two minutes into the first round. And after that, the side-to-side sway stopped.

Everybody has a plan until they get hit.

Managing your money works the same way...

When you see your account balance falling and look around to find nothing but fear and uncertainty, the primal parts of your brain kick in. Your pulse quickens... And if you don't calm yourself down, you can start flailing.

We invest our funds knowing we are taking a risk. We study historical volatility and drawdowns – so we tell ourselves to expect a 30% or 40% decline from time to time.

We tell ourselves we'll stay the course, invest in quality businesses, and know that the next bull market will come.

But no matter how prepared you thought you'd made yourself, if you've got a million-dollar account that falls by $400,000 in a 40% drawdown... you are in panic mode. You've been hit.

You need to recover your mental state so that you can recover your money.

To that end, it's important to note two things about bear markets...

First, they don't last that long. Markets tend to flush out and find their bottom faster than you'd think.

In my "Bear Market Almanac," published for my subscribers in 2019, I pointed out that the average bull market since 1940 lasted 1,456 days. The average bear was just 353.

In other words, as the old market saying goes: "Stocks take the stairs up and the elevator down."

That leads me to my second note... Markets don't wait for the "all clear" to start rising again.

If you wait until inflation, war, interest-rate hikes, and the threat of recession have all subsided, stocks will have started soaring without you. The market will lead the news on each of those threats passing.

When the market bottomed in 2009, people were still terrified of the financial crisis and fearing a "double-dip recession."

I won't call a bottom in the stock market today. I don't know if you'll ever see me trumpet a confident call that the market can't go any lower. Investing doesn't work like that.

Rather, I see risk – but I also see opportunity...

That means now is a good time to carefully invest in quality companies with the right defensive profile and plenty of free cash flow.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

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