I had a good reaction to a tweet I sent about my simple plan for coping with the current bear market. So, in this blog, I’m providing a little more detail about what I have done and what I will do. In terms of what I’ve done already in the last month or so, I’ve invested in some new positions such as Lloyds, but with the share price well in the red, I now intend to keep my powder dry. There seems to be a way to go before coronavirus stops hitting the economy.
Looking around the internet it seems there’s a lot of generic advice on investing in bear markets. Lots of it is repeated on many websites and seems to boil down really to psychology. At a time like this, you need to be patient, long-term focused and brave. Essentially there will be light at the end of the tunnel. And when we get there, there’ll be a load of money to be made, assuming you haven’t sold out of all your shares at the bottom of the market.
Though I don’t disagree with much of this advice. All of it is easier said than done though and I suggest is often written in hindsight. You know what they say about hindsight being a wonderful thing. Right now, in the eye of the storm, here’s a post about investing from me, a young investor with significant skin in the game.
Also, let me tell you that this is my first bear market after I started investing after university. I graduated in 2013, so again I can provide real guidance to anyone in the same boat as me going through a decline like this for the first time. Hopefully, there’s something helpful to those that went through 2008/2009 recession, the dotcom bubble and other market crashes as well.
As I said on Twitter, my plan is for investing in this bear market is very simple and I hope a very simple checklist like this helps others. It assumes, of course, your day to day circumstances haven’t changed, for example through illness or job loss. It’s purposefully not complicated. I’m not trying to sell anything to make investing seem complex, I’ll leave that to others.
1) Not sell ANYTHING
Why? The market has fallen so far that unless you’ve been invested for a long time you’re almost certainly just crystallising losses. Even if you have been invested for a long time most good companies will in all likelihood see out this period of falling demand and uncertainty, especially with the government saying it’s on a war footing and willing to do whatever it takes to support the economy.
2) Assume that this could last 18 months +, so don’t rush to buy
Patience is key. Prices could still go lower. So, as well as not selling anything from this point onwards I also wouldn’t rush to buy more shares. Also, I have no idea how long this bear market will last but Russ Mould from AJ Bell says it has taken an average of 648 days for the past 10 bear markets to recover to their previous highs.
3) Drip feed investments, to better spread the cost I pay
While not in a rush to buy I’ll add some more shares in companies I already own and most likely add new positions into companies on my watchlist which are now much cheaper than they were.
4) Add as much cash as I can – luckily I work
I’ll keep plenty of cash in my ISA, LISA and SIPP so that I can drip-feed my investments and take advantage of opportunities as and when they arise. At a time like this cash really is king.
It’s worth remembering all bull runs come to an end at some point. This is how the markets work, so what is happening now was inevitable at some point. The recovery stage is also an inevitability and this is why I suggest hanging in there if you can.
One other thing which I hope it’s not too flippant to say is there is more to life than investing. Yes, the markets falling sharply is unnerving, especially when a fall like this is a new experience, but at the end of the day, the markets will pick up at some point.