Money and Finance
Fearing this answer might be unsatisfactory, I floated a guess that there could be unforeseen consequences of falling oil prices.
There -- an answer more befitting an industry veteran.
The fact is, we have no idea what specific event or events will end this bull market, though it'll be obvious in hindsight, of course. Maybe someone will guess right, make leveraged bets on their thesis, make millions or billions and write a book about it, but for every one of those guys, there are legions who guessed wrong and are far worse off.
As long-term, business-focused investors, we shouldn't care much about what causes the next bear market. To borrow a phrase from Peter Lynch about macroeconomics, if you spend 13 minutes thinking about this, you've wasted 10 minutes. If anything, you're more likely to stress yourself out and make emotional trades in a quixotic mission to avoid your envisioned losses.
Rather than scramble to reposition your portfolio for the next bear market, we're much better off focusing on the things we can control. For one, look to learn more about the businesses we already own and the ones in which we've taken an interest.
Related posts
Stay patient, stay focused.
Best,
Todd
Follow @ToddWenning
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Money and Finance
Preparing for the Next Bear Market
The opportunity to secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself. - Sun TzuEarlier this week, a friend asked me what I thought could end this bull market. I searched for a smart answer and concluded that it was the one that investors haven't fully considered yet. Recalling my experience from the financial crisis, I said that it's always the punch you didn't see coming that knocks you out.
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| Keep an eye on your pic-a-nic baskets |
There -- an answer more befitting an industry veteran.
The fact is, we have no idea what specific event or events will end this bull market, though it'll be obvious in hindsight, of course. Maybe someone will guess right, make leveraged bets on their thesis, make millions or billions and write a book about it, but for every one of those guys, there are legions who guessed wrong and are far worse off.
As long-term, business-focused investors, we shouldn't care much about what causes the next bear market. To borrow a phrase from Peter Lynch about macroeconomics, if you spend 13 minutes thinking about this, you've wasted 10 minutes. If anything, you're more likely to stress yourself out and make emotional trades in a quixotic mission to avoid your envisioned losses.
Rather than scramble to reposition your portfolio for the next bear market, we're much better off focusing on the things we can control. For one, look to learn more about the businesses we already own and the ones in which we've taken an interest.
- How might a bear market impact management's current strategy?
- If the current management team was in place during the financial crisis, how did they handle that challenge? Were they honest in their evaluation of the marketplace or did they try to put on a good face?
- Does management have a track record of making opportunistic acquisitions and investments (buybacks, etc.) in down markets?
- Is the company's balance sheet prepared to handle a few lean years?
- Is the dividend well covered by both earnings and free cash flow?
Related posts
- The Unpopularity of Patience
- When Should You Sell a Good Stock?
- What's Your Investing Edge?
- What Reese's peanut butter cups can teach us about investing -- Sova Group
- The most under-appreciated investment skill is patience -- Time
- Is investing really a zero sum game? -- Monevator
- What makes for an exceptional company? -- CFO
- Peter Lynch speech from 1994 -- YouTube
- Understanding global capital allocation practices -- Michael Mauboussin
- A dozen things I've learned from Tom Murphy -- 25iq
The book I'm currently reading:
- The Last Lion: William Spencer Churchill: Visions of Glory (1874-1932)
Best,
Todd
Follow @ToddWenning
- The Benefits Of A Focused Investing Approach
When I was working in London a few years ago, I would often hear about a well-regarded investing book called The Zulu Principle by Jim Slater. As an American investor, I'd never come across the book and was curious to figure out what it was all...
- The Art And Science Of Investing
Stockpicking is both an art and a science, but too much of either is a dangerous thing...If you could tell the future from a balance sheet, then mathematicians and accountants would be the richest people in the world by now. - Peter Lynch, Beating...
- Use The Market's Short-termism To Your Advantage
Here's a general criticism that I often hear about investing in companies with economic moats: Companies with economic moats always look expensive and they trade with premium multiples to the market. How can we invest with a suitable margin-of-safety...
- Don't Let Mr. Market Be Your Coach
One of my high school basketball coaches was a real nightmare. Any mistake you made on the court -- an errant pass, a weakly-set screen, a poorly chosen shot -- quickly landed you a spot on the bench, followed by a rather loud commentary detailing exactly...
- 5 Questions To Ask Yourself Before Buying A Stock
1. What do I know about this stock that other investors don't? Every investor who has ever bought a stock believes it to be undervalued or under-appreciated by the market, but before you press the "buy" button it's absolutely critical to...