Isn't it interesting reading about all the hype saying that the market is going to be going down soon? I know that I, for one, feel like this bull market has been a long time coming and to kiss it goodbye now would be premature. I mean, we were all just starting to have fun, right? Well today you can count me as one of the writers to get in on the debate, but I'm not going to try to convince you where the market is going to be in 3 months, or what is going to happen once summer comes. I'm not here to tell you that we are going to see a sell-off in April, or a crash in May, or a bearish June. No, what I'm going to tell you is that the fear of a sell-off in April, or a crash in May, or a bearish June is what puts us at the biggest risk of these predictions becoming self-fulfilled prophecies.
The sobering truth is that these pessimistic predictions can have real effects. When analysts make estimations on the future value of a stock (or an industry, or an entire market, for that matter), something extraordinary happens. Those future estimations have the power to change its present value, and by changing its present value, we've just changed its future value. Think about how when we see a stock get a downgrade it can cause our entire perception of that stock to change.
As an example, let's briefly look back on Apple (NASDAQ:AAPL) and see how the downgrades and pessimism can have an effect on a company. Apple is now trading for $300+ less than it was 5 months ago, and while there are some reasonable explanations for why that happened, they don't change the fact that Apple is still one of the most recognized companies in the world. It was also only 5 months ago that they were listed by Forbes magazine as the most powerful brand on earth. The company was almost too successful for people to trust it, so bulls turned to bears and the share price got knocked down.
In my humble opinion, the bearish predictions are not what should guide you in your investing. We participate in a market that is a swirling clash of competing interests. That is why there will always be the following:
- Stocks that are undervalued, and stocks that are overvalued
- Investors motivated to see a stock go up, and investors motivated to see a stock go down
- Companies with great ideas, and companies with not so great ideas
And for as long as those three conditions exist, then we can also count on the fourth condition:
- There will always be money to be made
By exercising proper risk management and due diligence, you can still be a successful investor in any market. You won't be able to pick all the winners, so don't be afraid to cut your losses before they get out of hand and, in turn, have the confidence to let your profits run.
With all that said, I must say that I am not trying to convince you all that the market is infallible. There will be corrections and there will be sell-offs, because the stock market can be an unforgiving place. The market will have winners and losers, as it always has. What I intend to say is that you shouldn't let the fear of a coming bear market impact your investing, because that action in and of itself has the potential to cause a bear market.
As a lifelong student of economics, I like to use the example of a $5 sandwich. In economics, we study the choices that rational consumers make and the impact that those choices have on the health of the economy. We study a single person choosing whether or not to buy a $5 sandwich, not because one person choosing to buy a $5 sandwich makes a difference by itself, but because 5 million people making the same choice does.
Have confidence in the market, invest wisely, and diversify. Once again please, in the words of Franklin Delano Roosevelt,
let me assert my firm belief that the only thing we have to fear is...fear itself - nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.
-First Inaugural Address, March 4, 1933
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.