Confusing Market Crashes & Bear Markets

Confusing Market Crashes Bear, #MacroView: Confusing Market Crashes & Bear Markets. (Part-1)

At the point of death, the invested capital is short of the promised goal in every single case. Such is why using “compounded” rates of return in financial planning often leads to disappointment.

Most importantly, the difference between “close” to a goal or “not” depends on the starting valuation level when individuals started their investment journey.

Such is why you should compensate for both starting period valuations and variability in returns when making future return assumptions. If you calculate your retirement plan using a 6% compounded growth rate (much less 8% or 10%), you WILL be disappointed.


Understanding The Risk

Over the next several weeks, or even months, the markets can extend the current deviations from the long-term mean even further. But that is the nature of every bull market peak and bubble throughout history as the seeming impervious advance lures the last of the stock market “holdouts” back into the markets.

As Vitaliy Katsenelson once wrote:

Our goal is to win a war, and to do that we may need to lose a few battles in the interim. Yes, we want to make money, but it is even more important not to lose it.”

I wholeheartedly agree with that statement, which is why we remain invested but hedged within our portfolios currently.

Unfortunately, most investors have very little understanding of markets’ dynamics and how prices are “ultimately bound by the laws of physics.” While prices can certainly seem to defy the law of gravity in the short-term, the subsequent reversion from extremes has repeatedly led to catastrophic losses for investors who disregard the risk.

Just remember, in the market, there is no such thing as “bulls” or “bears.” 

There are only those who “succeed” in reaching their investing goals and those that “fail.” 

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