By Dr. Rikki Racela, WCI Columnist
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!
This narrative didn’t make sense. And women are not commodities.
Thanks for the feedback.
sorry I didn’t want to imply that women are commodities in any way. I did want to compare meeting my wife was an opportunity that luckily I took advantage of, just like a bear market is.
Wow. This article has it all: sexism, shaming, and more words than you can shake a stick at.
WCI— what is the point of this? The author is so critical of other investors. He’s attempting to make a prolonged metaphor about….? Meanwhile throwing in Brazilian hot chicks.
I don’t see how this is supposed to be educational. If you care at all about teaching effectively, especially to women, you wouldn’t publish stuff like this.
Disappointing. And another reason why WCI is 100% tone deaf when it comes to an audience other than dude bros.
Thanks for the feedback.
sorry I really of course didn’t mean to offend anybody. yes, the post sort of uses my male perspective to see bear markets as wonderful opportunities. next post (if WCI lets me!) I can try using a metaphor more from a women’s perspective that might encourage women to focus on personal finance.
Just a thought, but I don’t think it would be a good idea for you to write something about encouraging women to focus on personal finance.
Really?
What? Sorry but please refund me the last 5 mins!
So the post was light on substance. Agreed. Also the coronabear was a blip that required minimal intestinal fortitude.
How did the author do during the 08 recession? I’m guessing he was still in training, thus not really in the game yet. That was much more representative of a time when one would need to “stay the course.”
As an aforementioned “dude bro” of roughly the same vintage as the author (had a game boy, no game, graduated around Y2K) maybe I’m just not seeing the offensive content.
It was a light hearted attempt to aim some self-deprecating humor at investor behavior. Not the best WCI article, but good grief…put your big girl pants on and tune down the faux outrage.
I’m thankful to WCI, Bearnstein and even Dr Racela for pounding this message from multiple angles. During the Corona blip I literally took out my spreadsheet, noted I didn’t even need to rebalance yet to stay within our target AA (from my written IPS) and wrote in a cell near the Net Worth figure: NO NEED TO MAKE ANY CHANGES, STAY THE COURSE
Sometimes just repeating that mantra is all you need in the moment.
Keep up the good work docs.
Agree with this! Although I am a woman who had to deal with the gameboy guys back then.
Thanks for what you do WCI and although not the most substantial post, thank you Dr. Racela for taking the time to tell us about your experience in a lighthearted way.
thanks so much!
I have never understood the “Wish for a bear market” mentality… Because what – you think all of a sudden at the end of your career you’re going to get the combined total of, say 8% annual growth ^ 30 years in one single year, thus making it worthwhile that you got no gains for all that time? Are you mad when the market goes up 25% in a year?
I get that it’s a fanciful way of thinking and keeping you feeling confident, but it makes no sense to me.
If your only bear market experience is 2020 where it all came back in a few months, you have no idea how the typical bear goes. I’ll never forget the slow gut-wrenching decline in 2008, where every time you thought the market was turning around, it dropped some more, punctuated by the week Lehman went under. When you go to work on a day where you just lost literally a year of financial progress, it messes with your brain. I never sold during those days, but it would take a special kind of delusion to be happy about this happening
I knew from reading the title that this would be a sexist post. You are a great blogger Jim, but you are too lenient with sexist commenters and now with guest bloggers? Please listen and take more seriously the feedback from your female readers. Thanks!
Thanks for the feedback.
So cringe….
Awww, I thought this was romantic. A creative way of looking at things from a man who loves his wife and children. It helped him stay the course and might encourage somebody else.
Yes, I’m female .
ha! thanks, when I wrote this I though it was romantic too!
Agree with Nebraska!
I thought the article was a fun read and used some very important mini-stories to illustrate an extremely important investing principle.
I enjoyed the article.
Echoing the above. At best, cringe with truly awful writing. At worst, quite creepy.
Not to pile on but I also found the last podcast host Mr. Singh to have this distasteful slick youtuber/wallstreet/silicon valley bro feel. A bit out of touch with respect to most working MDs.
When it comes to content, quality over quantity.
Thanks for the feedback.
Didn’t think the article was bad here but was not a fan of Jaspreet either. I didn’t like the way he talked about the government trying to take advantage of citizens by increasing taxes and trying to keep inflation high to “print more money.” He also said that deflation was good at some point, which does not seem right; I think businesses would have to lay off their employees due to a shrinking money supply. Also to my knowledge, government debt spending puts money in the economy, which will stimulate it. Wasn’t a huge fan of his investing asset allocation either, which is obviously very far from the Boglehead approach. Overall, he seemed to oversimplify things and didn’t seem trustworthy.
Please Dr.Dahle
We love what you do
But no more demeaning posts like this.
We appreciate the feedback and ultimately I’m responsible for everything as the owner of WCI.
But do keep in mind that I neither wrote this post nor edited it nor even read it before you did. We’re working on getting more voices on the blog, particularly people who are different from me. In different stages of life, different specialties, different levels of wealth, different ideas about investing. More people of color. More women. Etc. It’s unlikely that you’ll connect precisely the same with each of them or in the same way you connect with me. If you see something that really doesn’t work for you, know there will be someone else along the next day. Take what you find useful and leave the rest. Of course continue to let us know what you like and what you don’t as we do use feedback to plan and adjust our course.
AMEN!
“…ultimately I’m responsible for everything as the owner of WCI. But do keep in mind that I neither wrote this post nor edited it nor even read it before you did. ”
Wow.. way to take responsibility and then immediately attempt to dodge it. Maybe you should try reading the articles before you publish them via your business. This article was demeaning, misogynistic and quite frankly creepy. You’re right, I didn’t “connect with” this article because it was full of sexist trash.
What would you like me to drop from my life in order to read everything that comes out of WCI these days? Should I stop practicing? Stop spending time with my kids? Stop writing anything myself? Maybe drop the podcast?
This is all now a team effort, so when you leave a comment that you don’t like someone’s writing, maybe you should start by addressing the person who actually wrote it. You’ll find their name at the top of the article. WCI has not been a “one-man operation” for many years now. 2014 to be exact. We have many new columnists this year and a new editor. They are all learning to write in ways less likely to offend, just like I had to my first few years. I assure you none of them intend to offend, but how something is said matters and we’re all trying to improve.
If you would like to help in our effort to help those who wear the white coat get a fair shake on Wall Street, we accept and run guest posts all the time from regular readers. More info here: https://www.whitecoatinvestor.com/contact/guest-post-policy/
Harsh feedback never feels good. And sometimes its not very reasonable (oh the internet!).
But it’s a bit absurd to say things like “I built and own this business/site/brand, make plenty of money from it, but don’t read what it produces so take it easy on me”. Then make a play to your humanity like you’re busy and have a family as if you did not actively choose this path. You also actively chose to solicit our opinions by putting in comment sections. Oh what you must tolerate for more “engagement”.
IMO and what has been echoed by others, you should focus on good quality financial content rather than fluff for quantity. You would only be a little less rich, and you’d probably get less negative feedback. It seems that your business model has become analogous to the GI doc who after liking what the balance sheets look like after doing a few extra colonoscopies, is finding more and more reasons to do a bunch of scopes over seeing the IBS folks.
I don’t see it that way at all.
Let’s use your GI analogy. Imagine there is a GI doc that is 75 and knows he won’t be practicing much longer. But he also has a full practice of people that really need a GI doc and wants to do what he can so those patients will continue to receive excellent care once he is gone. So he hires a few associates to help him and eventually perhaps even take over the practice. While most of the patients like most of the new GI docs, a few of the patients dislike one of them because a comment or two he made was taken in a way it was not intended. They begin to complain loudly but anonymously to the owner, thinking he should be responsible for everything that associate ever does or says. They think he should come into every exam room and watch every little thing the associates say or do to make sure that not only does it meet the standard of care, but also that they have the exact same bedside manner as the owner. However, he knows this is impossible, as the practice is now too large for one doctor to even review all of the charts, much less be present for every consultation. At a loss of what to do, he pursues the course that he thinks will be best for the vast majority of the patients of the practice, even though he knows there will be a few who will leave because he refuses to do what is obvious to him to be an unreasonable expectation.
Hope that helps. If not, well, I guess you can go find a new GI doc.
[Ad hominem attack deleted]
sorry, no my intention to be demeaning at all!
Great entertaining and interesting post … Good point about the fear part of the brain being activated as context for the tendency for investors to sell during bear markets and return chase. The typical investor averages returns lower than the market for this reason of return chasing. Also, great point about how a written plan in place can check your emotions during the bear market. When the stock market is plummeting your amygdala is not exactly facilitating the most rational thought. A pre written plan that sketched out what to do beforehand can be a good anchor.
Thank you for sharing your perspective on markets like this as a neurologist. It’s unique and helpful.
The excellent advice in this great post is similar to this from a Jason Zweig article about how having an automatic plan in place can help you. When the market crashes your amygdala / fear is triggered and the plan protects you from that. It was great in this post to hear a neurologist’s perspective on what Jason Zweig wrote here,
“Strap yourself in — Because the amygdala — the part of your brain that initiates feelings of fear — is an almost irresistible force, you must reduce your exposure to images that can provoke panic. Turn away from stock tickers; turn off the televised images of closing bells and yelling traders. And promise aloud or in writing, before a friend or family member who can hold you to it, that you won’t check the value of your accounts more than once a month. If you haven’t already, sign yourself up to dollar-cost average through an automatic investment plan that will electronically purchase shares in a mutual fund every month. That way, your investing commitment can never flag, even when you are full of fear.”
yeah Tom thanks that was exactly the angle I was getting at. next time I face a bear market and my amygdala gets activated, I’m hoping to think about my marriage and access my nucleus accumbens at the same time 🙂
Creepy, icky, cringeworthy, sexist, worst post ever on this site. And not even helpful from a strictly financial point of view.
Thanks for your feedback.
Sexist? In what way? I thought the stories did a good job depicting the priorities if an adolescent boy (Gameboys and girls). He didn’t demean anyone. He shared what was a personal experience and explained how he viewed that experience during that time in his life. Teenage boys are typically very excited to hang out with a lot of attractive teenage girls. This is a simple fact of life.
Seriously, I don’t see what people are actually so upset about. I’d love to see a detailed explanation, as I obviously lack perspective to see the “sexism.”
Sometimes you can’t win. This comment was left on a post titled “Invest Like a Girl” today. It seems we’ve managed to offend both men and women this week:
That was awful and unrelatable.
Some additional editing done on this post today that will hopefully make it less offensive to future readers than some of the past readers and make its main thesis more clear.
I came upon this post while reading comments about bear markets. Unfortunately, I think that the original message of the guest columnist got lost in the way in which the message was delivered.