Investment Mistakes in a Bear Market

This is a guest article by Ray, the owner and primary author of Financial Highway, where he discusses investing, saving and practical money management concepts. You can check subscribe to his RSS feed or follow him on Twitter.

Investing seems scary, and investing during a bear market is even scarier. Believe it or not bear markets are an important part of a healthy business cycle, corrections are needed to ensure prices are not overly inflated. It is true that market corrections put a little dent in our portfolios, however the big losses are due to our emotions and investment mistakes in a bear market where we try to reduce losses but actually are losing more. What are some of these mistakes?

Sell, Sell, Sell…

When markets tumble everyone gets freaked out and starts selling without any logical reasoning or attention to long-term goals. As the sell-off continues more investors jump on the train and sell their investments, often they all miss the fact that they are selling at the bottom to only repurchase them back at the top. Stop selling without a reason, only sell if the fundamentals have changed for the long term or the investment does not fit in your plan, not because everyone else is selling in the market.

Stop Investing

The only worse thing one can do than selling out in a bear market is stop investing during the bear market. People get scared and think the markets are falling apart and believe there is no point in investing. Would you stop shopping if retail prices dropped 30%? No. You would probably buy even more because everything is on sell now so you’ll take advantage of the good prices, same concept applies to investing. There is a huge sell going on in the financial markets during bear markets and you should take advantage of it and not hide from it. When you stop investing during a bear market you will miss out on many undervalued investment opportunities which can have great returns in the long run.

Look at Alternative Investment

Some investors start to look at alternative investments because they believe somehow these will perform better than the equity markets. In this recession the focus has been gold investment, gold is reaching all time highs and investors believe gold is a great place to invest. Frugal Dad recently answered a readers question regarding gold, here are my reasons why gold is a bad investment. Although alternative investments have their place in a portfolio the excessive focus during bear markets makes them dangerous.

Timing the Market

Unless you have a crystal ball or have some psychic abilities just stop wasting your time and money trying to time the markets. Investors are more likely to time the markets during a bear market, as there are often big swings, which are seen as opportunities by investors, this strategy will only hurt your portfolio.

I know bear markets hurt, but you trying to “improve” things will only make things worse. Successful investing is not magic, just keep things simple and maybe follow few investing and money rules of thumb and you’ll be fine in the long run.

What were your investment mistakes during this bear market? What have you learned from them? You know anyone who made these mistakes?


  1. This article is expressing the conventional advice when arguing that it is a bad idea to “time the market.” I believe that the idea that we should not time the market is the worst investment advice that has ever been put forward. It has caused untold human misery in the time since it became popular back in the late 1970s.

    We need to think about what the phrase “time the market” really means. What it really means is “pay no attention to price.” The only way to protect yourself from investing in overpriced stocks is to “time the market.” If you fail to do this, you are going with the same stock allocation at all price levels, you are investing passively.

    There is a surface truth being expressed in the argument that investors should not panic in bear market. It is certainly true that bear markets are a necessary part of an inevitable cycle. The problem with the advice being offered here is that it ignores the cause of the bull market that caused the bear market. The bull market was built on this claim that it is not necessary to time the market. The primary reason why people are panicking today is that they are coming to the realization that they have been sold a bill of goods with all the silly claims that stocks are always the best investment class “for the long run” (Oh, really? At any price?).

    Investors are panicking today for a perfectly good reason. They have bought into marketing slogans that cannot work in the real world. In these sorts of circumstances, panic is inevitable sooner or later (every earlier out-of-control bull market eventually produced a widespread panic as investors learned that their portfolios were built on sand). If you are going to panic sooner or later, you are better to panic sooner. Those who panic first get far better prices for their stocks than those who panic last.

    The real focus should be on learning how to invest in such a way that you can avoid future panics. That means taking prices into account when setting your stock allocation so that you have some idea when making your stock purchases whether stocks for you are going to pay off in the long run. If you know what you are doing when you set your allocation, you won’t be feeling panic when the reality principle sends the insane bull-market prices back down to reasonable levels (as ALWAYS must happen for the market to continue to function).


  2. Great comment Rob. So what you are saying is that there is a healthy balance between “paying NO attention to the price” and “paying attention to the price” i’d echo what was said in the gold thread about the US dollar index and waiting for it to drop below 72 before touching gold again.

  3. Market timing is generally understood to be jumping into the market when prices are “low” and jumping out of the market and putting the money into short-term debt when market is “high.” This presumes we know what high and low are, and what constitutes “fair market value.”

    Rob, do youself a favor and have a look a classic study on market timing, “A Non Parametric View of Market Timing” by Wei Jiang. Also have a look at the 40 or so peer-reviewed academic articles referenced in the study that say that market timing in its various forms doesn’t work over the long run. Period. But then again, what do professional economists know?

    Classic dollar cost averaging into a well diversified, well-allocated portfolio will allow an investor to buy a little of an asset category that is priced high and a lot of an asset category that is price low, if the dollar amounts are kept constant according to the predetermined investment strategy. It is boring? Somewhat. It it effective? Yes!

    As to the big, bad bears, don’t fear them if you are a dollar cost averager. DCA allows you to simply buy more at a lower price.

  4. I used to think everybody panics but after reading all these comments and posts regarding the markets, I think a lot of people have stuck by their guns and have recouped A LOT of money in the past year.

    Best, FS

  5. 2009 was a tough year! I honestly wish I had the forsight to pull out before this mess started… I know of a few people that did so.

    That said, since I was already down, I’d figured I’d just wait for the stock to bobber pop back up after being pulled down under so far.

    In my 401K I started maxing out my contributions when the market was it’s lowest.

    If the later half of 2010 is still negative, I might start to rebalance my portfolio more conservatively.


  6. But then again, what do professional economists know?

    Like all humans, they sometimes don’t know all that they think they know, Greg. They’re good people. They’re smart people. And they’re imperfect people. Humans!

    And of course they don’t all agree. Robert Shiller is a professor at Yale University. He has been doing research for 30 years showing that long-term timing ALWAYS works. There has never yet in the historical record been an exception to this rule. He provides the underlying data at his web site. You can check out his claims if you have doubts.

    Is it possible that Robert Shiller got it wrong? Of course. Is it possible that Rob Bennett is getting it wrong? Obviously. But there is no proof that this is so. There is strong evidence that short-term timing doesn’t work. Some have concluded from this that no form of timing can work. Some have noted that the same data also shows that long-term timing always works and have concluded that we need to avoid short-term timing and embrace long-term timing.

    Each of us has to invest our retirement money according to what we believe is so. I certainly respect your position. I am well aware that some of the smartest and best people in the field agree with you. But I personally view the claim that long-term timing is not necessary as an exceedingly dangerous claim and I think I have an obligation to say just that when the subject comes up in conversations among friends of mine.


  7. @ Rob Bennett: “they sometimes don’t know all that they think they know, Greg. They’re good people. They’re smart people. And they’re imperfect people. Humans!”

    They have also done more than sit behind a computer and throw stones, Rob. They studied, wrote, analyzed, and polished their skills. Met with other experts. Published. Been peer reviewed. Used statistical methods. Learned economics, finance, history.

    Anyone can be a bomb-thrower, especially when they are innumerate, uneducated, and hell-bent to cause a splash at any cost.

  8. They studied, wrote, analyzed, and polished their skills. Met with other experts. Published. Been peer reviewed. Used statistical methods. Learned economics, finance, history.

    I agree with this part of what you wrote, Anti-Crank. I feel great respect and affection for Bogle and Bernstein and Burns and Clements and all the other “experts” who have taught me important things about investing. There would be no Valuation-Informed Indexing without John Bogle having led the way. And I have spent seven years of my life developing and perfecting the Valuation-Informed Indexing strategy. So I obviously owe the man a debt of gratitude.

    Where you and I part company is with your suggestion that Bogle and the others cannot make mistakes. I have studied the matter in great depth and determined beyond any doubt whatsoever that they have made terrible mistakes that have put our economic and political system at grave risk of collapse. I don’t fault them for the mistakes. I fault them for the defensiveness to which they have responded to questions put to them (not just by me — Robert Shiller published his research showing that valuations affect long-term returns in 1981 and many other established “experts” have confirmed Shiller’s findings in the years since).

    I believe that there is going to come a day when Bogle and all the others acknowledge their mistakes and join the rest of us in an effort to rebuild our market, our economy and our political system. You won’t hear me saying anything critical about any of the “experts” then. We will be standing side by side doing what needs to be done on our journey to becoming real experts and we will all feel a whole lot better about our futures than we do today.

    Bogle is a hero to me. My hero has made a mistake. I think it would be fair to say that his true friends are the people who are trying to persuade him to come clean re the mistake, not those who are urging him to engage in further efforts to cover it up. Those who think of themselves as John Bogle’s friends but who do not act toward him in a spirit of true friendship (a true friend is the person who tells you what you don’t want to hear when phony friends don’t have the courage to do so) have caused great damage to what until recent years was a shining reputation for a lifetime of good works for middle-class investors, in my assessment.

    I love John Bogle. I love him enough to want to help him out of the mess he has gotten himself into (with the open encouragement of a good number of weak-hearted “friends”). I will continue to do what I can to insure that John Bogle’s good reputation is a lasting one. I will continue to point out the great good that Bogle has done for many decades AND the great mistake he made that has imperiled that work and the financial futures of millions of middle-class workers. As much as I care about John Bogle, it is not only John Bogle who matters to me. In the end, I also care about the millions who have put their trust in John Bogle’s advice about how they should invest their retirement money.


  9. @ Rob Bennett


    Rather than refute your response, I’ll merely point anyone who is interested to your audio diatribe for today, located on your very own website, where you rail against mythical enemies.

    Readers, please listen to Rob’s own arguments and words straight from his own mouth. No other comment is really necessary.


    PS The term ‘death threats’ comes up maybe a dozen times in this episode of Rob’s monolog. Unfortunately, although he has been asked repeatedly to provide a single instance of any such a threat, he has to-date failed to do so, even for the complaints he filed with Purcellville PD, the FBI, the ACLU, and the EFF where such evidence would have presumably strengthened his case. Needless to say, no one has taken up his charge, made again in today’s audio, for a Bennett-led pogram on internet free speech.

  10. although he has been asked repeatedly to provide a single instance of any such a threat, he has to-date failed to do so, even for the complaints he filed with Purcellville PD, the FBI, the ACLU, and the EFF

    This is of course pure nonsense. I have documented the death threats in all cases in which they have come up in my discussions with police authorities. I also contacted the administrators at the Motley Fool site in real time when the death threats were being advanced and informed the administrators at the Morningstar site of the background when my fellow community members there expressed surprise as to why a forum that had generally been non-abusive had become abusive when discussion of the errors in the Old School SWR studies came up (it is the author of one of the Old School studies who had made the death threats at Motley Fool and who was intent on blocking honest discussion of SWRs at the Morningstar site).

    Set forth below is a link to the text of my e-mail to Rep. Frank Wolf (R-VA) urging legislation to deal with the growing problem of intensely abusive posting on the internet and long-running Smear Campaigns aimed at destroying the reputations of those who help us learn about stock investing and many other important topics. The e-mail provides a good background of the Goon problem we have struggled with in the Retire Early and Indexing discussion-board communities for over seven years now.

    The name of the book that I am working on is “Investing for Humans.” I think it would be fair to describe a good bit of the behavior at issue here as sub-human. Yucko! It has no place in discussions of how to invest effectively, in my assessment. The fact that it has become a regular feature of our discussions and that so few Passive Investing advocates have spoken out in opposition to it says something about the confidence that many Passive Investing dogmatists have in their “ideas,” in my view.


  11. Rob said: “I have documented the death threats in all cases in which they have come up in my discussions with police authorities.”

    Please provide specifics on at least ONE specific, credible threat, since your linked post states:

    “I have seen threats [plural] to kill me, my wife and my children”, yet that article does NOT provide any specific quote, any url, any link, any pointer, or any other specifics to allow one to verify your claim.

    Claiming such a threat exists is NOT ‘documenting it, especially if you did not report it real-time as it occurred, supposedly back years ago when you were allowed on Motley Fool board. Credible threats cause people to contact the authorities right away, not many years later because they are frustrated with their still-born career as a financial author without credentials or credibility.

    The reason I ask for this goes right to what you mention in your podcast — intent. Are you intentionally fabricating, or are you merely mistake on overly sensitive or misremembering.

    Rob, anyone can be excused for misremembering. But once their attention is drawn to the error, and once they are allowed the chance to correct the record, then the right thing to do if the claims cannot be supported is to say those three little words. Don’t you agree?

  12. Credible threats cause people to contact the authorities right away

    You are talking as if the rules of civilization that applied for thousands of years before the internet came into existence applied today on this wonderful new communications medium, Anti-Crank. The reality is that these rules, and the laws that were employed to give them reality, do not apply to discussions held on the internet today.

    I put a post to the Motley Fool board on May 13, 2002, showing that the Old School SWR studies get all the numbers wrong. John Greaney is the author of the Old School study published at his web site ( He did not like it that hundreds of members of that community expressed a great interest in exploring these issues in depth. He tried a number of different abusive tactics to block the discussions, all of which failed. Ultimately, he determined that his only hope was to cause all community members of intelligence and integrity to leave the board. To do this, he put forward death threats. This worked.

    Were the death threats “credible”? I did not personally believe that Greaney was going to come to my house and kill me or my family members. My wife was extremely alarmed, however. She had the responsibility to take care of two small children and I think it would be fair to say that someone who would be willing to degrade themselves to the extent necessary to put forward death threats at a public board has more than a few screws missing. So, yes, the death threats were credible to her. They certainly intimidated her.

    They intimidated lots of other people too. FoolMeOnce was one of our best posters. He said on the day of the death threats that he felt that the board had become a place where he could no longer participate in good conscience. There were hundreds of community members who gave a recommendation to his post. So we lost hundreds of fine community members that night, people who have given large amounts of their time without compensation to help us all learn about early retirement. The threats were credible enough to cause what was once the most successful board in Motley Fool’s history to be burned to the ground.

    After that, those threats and similar intimidation tactics were credible enough in the eyes of my fellow community members to cause half a dozen other boards (boards formed by people who wanted to be able to discuss early retirement on indexing issues in peace) to be burned to the ground as well.

    So I oppose this sort of thing. I have seen what it does to the souls of the people who put forward the death threats and what it does to the souls of the people who sit quietly while they are put forward for this sort of thing to be tolerated. I do not tolerate it. I cannot put an end to it by myself. But I can speak up against it in appropriate circumstances. So I do that. And I believe that we will see the day when legislation will be passed protecting us all (including the Goons, to be sure — Greaney was a much-loved figure in the days before the death threats and I consider him a friend to this day and I urged him in the strongest possible language not to go down this dark path) from this sort of ugliness. It has no place in internet discussions of money issues, which should be about learning and sharing and forming friendships, not self-destruction and the destruction of others.

    I am obviously not the only one who feels this way. Set forth below is a link to an article at my site that contains 101 snippets of posts of community members who have expressed a desire that honest posting on investment topics be permitted once again at the Retire Early and Indexing discussion boards. The 101 posts are of course only a tiny sample of the total number of posts that have been put forward expressing this desire over the first seven years of our discussions.

    Many, many good and smart people want to use the internet for positive, life-affirming purposes, Anti-Crank. The way it is. Deal with it.


  13. Bennett repeated:

    “John Greaney… put forward death threats. My wife was extremely alarmed…”

    Once more, Mr. Bennett, I repeat the same request as I started with:

    Please provide a specific link to the specific credible threat.

    If you cannot, then I would, if I were you, drop the constant repeating of such lies, before someone with far less patience than I have decides to sue you for your obvious, willful, repeated, and damaging slander.

    (And no, Mr. Bennett, that is not any sort of a threat — just in case you decide to make this post the topic of your next attention-seeking podcast. It is merely the best advice of one with obviously better judgment than you exhibit.)

  14. Mr. Bennett, that is not any sort of a threat

    It is a threat.

    It is an intimidation tactic.

    I look forward to the day when personal finance bloggers unite to insure that this sort of thing can never happen again.

    We have done wonderful work in the Retire Early and Indexing discussion-board communities over the past seven years. I am proud of that work and I am proud of each of the thousands of community members who contributed in a positive way. I don’t believe that any of us should offer any apologies for the good work we have done. We should hold our heads high, continue the learning process, and share what we know with our friends and neighbors and co-workers and fellow community members regardless of how it makes those who have engaged in abusive posting feel for us to do so.

    Do I feel compassion for those who have ruined their reputations because they had come to believe that none of the rules of civilized society apply on the internet and that there was no chance that they would be held accountable for their behavior? I do. But I am clear in my mind that allowing the current situation to continue is not a fruitful way to give effect to those feelings of compassion.

    I will post honestly re what the historical data says about safe withdrawal rates or I will post not. That one is non-negotiable, Anti-Crank. If you check the Post Archives, you will see that never for three seconds have I done anything to suggest to anyone that there could ever be any give whatsoever re that one. So I sleep at night secure in the belief that this was not my doing.

    I have the right to post honestly and I intend to exercise it. I encourage all other community members (including those who believe in Passive Investing, to be sure) to do the same. Your intimidation tactics repulse me. But they do not impress me. They are low tactics. They are the sign of a weak hand. The studies should have been corrected on the afternoon of May 13, 2002. Had that been done, we would all be in a far, far better place today than the place we now find ourselves in as a result of our collective decision to instead travel a very, very dark path indeed.


  15. One quick final reminder of what you claim on your site and in your correspondence to authorities, as you advocate some sort of a universal gag order on the internet (!), the result of which you euphemistically refer to as “Free and Honest Posting.” If your own dead-letter-office of a stagnant blog stands for what the currently vibrant internet discussion environment would become after you have had your way, I give you a resolute: “No thanks!”

    Rob, I am done here and consider you to have been handily proven a serial liar unless and until you respond in the positive to back up your claims with specifics:

    Bennett: “I had heard talk about abusive internet posting before I put forward my first post at the Motley Fool board… The death threats against me appear at that site to this day.”

    Link, please.

  16. Rob & Anti-Crank,
    Why don’t you two take it outside?
    To get back to the topic, I know a couple at work; she has a background in waitressing, and he is an accountant/financial analyst. When the market was pretty much at it depths last year, she caught the hysteria and persuaded her husband that they should transfer all of their 401K funds from stocks to our “Stable Value” fund. I thought it was an interesting example of emotion over reason – surely she was not more qualified than he to make their investment decisions? We went with the “stay the course” conventional wisdom. We lost an awful lot of $$, but recouped much of it this year. I don’t know when/if they got back into the market and what their net result was. I figured that it would only be a loss if we moved our funds out of the market; that makes the loss real. By just riding it out, it was only a theoretical loss since we aren’t retiring anytime soon. I have a strategy that I adopted from one of those three monkeys (See No Evil) – I try to only look at my 401K account when the market is doing well!

  17. Why don’t you two take it outside?

    It’s not just the two of us, Rosa.

    There are thousands of community members at the Retire Early and Indexing discussion boards who have expressed a desire that honest posting on stock investing be permitted on the internet. We have studied these matters in great depth and have developed important findings that middle-class investors do not hear about from The Stock-Selling Industry (for obvious reasons).

    We are today facing the second biggest economic crisis in U.S. history. The financial pressures that have resulted are showing signs of doing damage to our confidence in our political system. People need a place to go where they can obtain independent and realistic advice about how to invest in stocks. The internet is the obvious place for people to go to learn about these matters.

    I obviously am not responsible for the behavior of the individual who leads the Smear Campaigns. I was a friend of his in the days before we learned that he got the number wrong in his study,. I obviously had no way of knowing that, when our community learned of his error, he was going to spend the next seven years of his life going from community to community to make sure that no one was giving the accurate numbers to the many people who need to learn about them to plan their retirements effectively.

    I think we all should be working together both to open the internet up to honest posting on these questions and to help middle-class workers gain access to the information they need to invest effectively. I think it is fair to read your comment as an expression of anger. I do not think it is fair for you to direct a portion of that anger at me. I am trying to help and I have been doing that for a long time now. (I can understand you feeling some anger at Anti-Crank. I think it is fair to conclude that he is not participating here with good intent.)


  18. Rob, Anti-Crank:

    I will second the request that you two “take it outside.”

    Rob – it seems that you are showing up in more and more of the comments sections of blogs I enjoy reading spewing your nonsense of death threats and a vast ban on honest posting on one thing or another. Please let me enjoy this blog in peace.