Since I've been reading about personal finance, I know one of the most basic and vital tenets of investing is to never sell in a bear market. I went through my first bear market in 2020, and with my 80/20 stock/bond allocation, I “lost” at least $30,000 in my taxable account (probably more if I had bothered to look in my retirement accounts). I don’t mean to brag, but I slept like a baby. In fact, I was upset the market didn’t tank further!
I kept investing as per my written financial plan and, in fact, sold my 20% bonds to buy more equities. You continually hear that when there is a bear market, stocks are on sale. I am super surprised that investors make the cardinal sin time and time again of selling stocks in a bear market. It is absolutely fascinating to me as a neurologist that people will freak out as their portfolio takes a nosedive and, because of loss aversion and other reasons, they panic sell. I will never be able to ask every single investor that has sold low what the heck they were thinking, but that’s the problem—they likely were not thinking.
Even if they knew market history and that the stock market will always go back up, emotional biases like loss aversion are very difficult to stave off. Loss aversion causes these very rational investors to ditch being prudent and to sell out in a bear. Another bias is herding, where everybody else is selling, so you sell, too.
After observing this type of panic selling in 2020 and repeatedly hearing stories in past bears of such detrimental behavior, I think it is time to use our own emotional biases for, rather than against, us when it comes to investing. What follows next is my attempt to hit up your “System 1,” described by Daniel Kahneman, to take advantage of a bear market, to create a new heuristic where bear markets are simply awesome.
For most of us, a bear market—where you might see your account losing thousands, tens of thousands, or even hundreds of thousands—will really send your amygdala into a tizzy and you hit the sell button. In my quest to become a better investor, I’ve tried my very best to associate bear markets with the happiest times in my life, to make it so that a bear market is actually a dopamine hit to my nucleus accumbens. No, I did not snort cocaine during last year’s Coronabear to make myself welcome a market downturn (though it would be an interesting experiment!). Instead, I associate a bear market with one of the most amazing experiences I have had in my life—when I met my wife. While meeting your soulmate is a good thing at any point in your life, a bear market is one of those things that is good when you're young but perhaps not so good when you're older and have more to lose. Despite the obvious wonderful activities of both of these activities, they can both be very nerve-wracking.
Meeting My Wife
For single readers, the story of meeting my wife may not be as salient to you. The only way to really switch our behavioral biases to our investing advantage is to create salience, something that you can relate to. So for those single men and women out there, let’s start with this story.
Back in eighth grade, my first international trip was a Royal Caribbean cruise. Exciting as this would seem to most people, I was not as excited. Despite the prospect of going to different islands, the itinerary had a lot of days at sea. What the heck was I going to do most of that time stuck on a ship? And although I love my family, they aren’t exactly the most exciting people in the world (don’t tell them I said that!). I remember packing my Game Boy (remember those?) into my suitcase thinking, “Man, I’m gonna be playing on this thing a lot.” Boy, was I in for a surprise.
One thing about Royal Caribbean and other cruise ships is they have tons of activities geared toward teenagers. I wasn’t really interested in partaking in these activities, but my parents prodded me into it. The first activity was on the first day at sea; I moped into the teenage lounge thinking that this was so stupid. What I saw next was absolutely astounding to any teenage boy: there was a room full of incredibly beautiful Brazilian young women celebrating a friend’s quinceanera. What luck! It turned out I was “stuck” on a ship with a bunch of attractive Brazilians!
There was one problem: I was a very shy boy back then (remember what I said earlier about packing a Game Boy? Yeah, that was really the only “game” I had back then). So despite the luck of meeting a bunch of gorgeous teenagers, it took every ounce of confidence I could muster to continue to show up to these activities that week.
It was a bit like a bear market. I had barely talked to the English-speaking girls in my middle school, let alone foreign girls who spoke Portuguese. I was shy and lacked confidence and was incredibly nervous, just like a bear market where you can lose real money.
It was lucky that I was stuck on a ship with these girls, just like most knowledgeable investors know a bear market is a buying opportunity. But when you see your portfolio head for the stinker, the apprehension in the pit of your stomach is the same apprehension I was feeling before every teenage activity on that ship. I was nervous. But like not selling and staying invested during a bear market, I kept hanging out. Not only was it a lot of fun, but I found the experience beneficial for the rest of eighth grade and beyond.
My Experience with Brazilian Girls and Jack Bogle
Yes, somehow I am actually relating my experience with Brazilian girls on a Royal Caribbean cruise to Jack Bogle and the rise of Vanguard.
While Jack Bogle, as smart as he was at recognizing the value of indexing and as pious as he was at putting the individual investor first with low fees, he really lucked out in his timing of starting Vanguard right at the bottom of a bear market. This has been noted by Paul Merriman. Jack Bogle started Vanguard in 1974, right at the time during one of the worst bear markets since the Great Depression. Stocks were at their lowest, and he created the first publicly available index fund right at the time when stocks were on sale, just like I was at my socially inept lowest on that eighth-grade cruise. My parents could have picked the week before or the week after or any other random week for a cruise, and I doubt I would have encountered another Brazilian quinceanera.
It was lucky timing for me, and it was lucky timing for Jack. Being called Bogle’s Folly, Jack and Vanguard struggled, but because of the timing of investing an entire company in a bear market, this propelled Vanguard to become the largest mutual fund company in the world.
Meeting My Wife and a Bear Market
To reinforce my view that a bear market is something that is a blessing from God, I will relate the story of meeting the woman of my dreams, my wife. As part of an undergraduate summer neuroscience program at Rutgers in 2001, I recall walking into the building of our first meeting and bumping into the most beautiful woman I had ever seen, including every Brazilian I had ever met! As I would later learn, she was also phenomenally intelligent and incredibly driven. We were in a rush at the time, and as we hurried through the building, we ended up entering the same meeting room. As luck would have it, we were in the same summer program. As part of the program, we stayed at these large dormitory apartments on the Rutgers campus, but each weekend everybody in our program would leave. Everybody . . . except Meredith and me.
I tried to take advantage of this bear market/opportunity as much as I could. Why a bear market, you ask? Because like a bear market, every day in the program was nerve-racking. But I gathered my courage and kept asking her to half-price appetizers at Applebee’s (pretty gourmet for a college kid), and despite multiple no’s, my persistence won out.
She eventually caved in and said yes to Applebee’s. And years later, the persistence through the “bear market” of meeting my wife led to her saying yes in a different capacity.
What a Bear Market Means to Me
A bear market to me is not something to avoid but rather to embrace, just like other wonderful things that have happened to me in my life. It invokes the same feelings as other great opportunities that I have experienced in my life that have paid off handsomely. I hope you remember my experiences in this post, with its humor and endearing stories, next time you encounter a bear. I encourage you to relate bear markets to any of the most exciting, touching, and lucky events in your lives. Continually investing and not selling during a bear market paid financial dividends for me last year. Just like it did as a young teenager on a random cruise ship. Just like it did for Jack Bogle who founded the largest mutual fund company in the world. Just like when I met the woman of my dreams in a Rutgers neuroscience program.
William Bernstein has noted that a 25-year-old who is actively saving for retirement should get down on their knees and pray for a decades-long, brutal bear market. Well, I wasn’t 25, and though it took more than a decade after we met and was brutal finally gaining the courage, when I got down on my knees, she said yes. Now many years and two phenomenally wonderful children later, I will always keep investing and never sell out of any bear market.
What do you think? Will associating cherished memories like meeting your wife (or husband) with a bear market help keep you invested? Or do you think I’m full of it and we are forever enslaved by our behavioral biases and doomed to feel panic during a bear? Comment below!