By John Grace
Contributing Columnist
Some of life’s most valuable investment lessons don’t come from Wall Street. They come from Mother Nature.
As a young Boy Scout, I vividly remember a camping trip where the park ranger gathered our troop and delivered a simple warning: “Don’t keep food in your tents.” Bears have an extraordinary sense of smell, and even a small bag of snacks could attract a very unwelcome midnight visitor. Most of us listened.
One group of scouts, however, tucked away Fritos and Oreo cookies before turning in for the night. By sunrise, their tent had been destroyed. A hungry bear had followed its nose, shredded the canvas, and claimed its prize. Thankfully, no one was hurt, but the lesson was unforgettable: ignoring a known risk can become very expensive. Investing isn’t much different.
A bear market isn’t simply a period when stock prices fall. It’s when portfolios can lose 20%, 30%, 40%, or even more of their value. A 50% decline requires a 100% gain just to get back to even. Those losses are especially painful for retirees taking withdrawals because every dollar spent during a downturn leaves fewer dollars available to participate in the eventual recovery.
In New York last October, I suggested the cryptocurrency boom may have reached its peak during what I called “the orgy of everything” — a period when investors appeared willing to pay almost any price for almost any asset. Since then, both Bitcoin and gold have suffered significant declines.
Whether those losses ultimately exceed 20%, 50%, or recover from here is less important than the lesson they reinforce: no asset is immune from risk, and yesterday’s winners can become tomorrow’s disappointments.
The answer isn’t to predict every market move. It’s to prepare for them.
Active management seeks to reduce exposure when conditions deteriorate rather than simply hoping for the best. Broader diversification across asset classes, not just stocks, bonds and private homes can also help reduce dependence on a single investment theme.
Investors should build their defenses before markets turn hostile, not after the damage has been done. Championship teams and savvy investors establish their defensive strategies well in advance.
The same principle applies to investing. Hope is not a strategy. Preparation is.
While bears see clearly in pitch-black conditions, investors can deploy teams with specialized financial tools to recognize opportunities. The next bear market will eventually arrive.
The question isn’t whether it will come, but whether you’ll have left the cookies in your tent or built a plan designed to protect what you’ve worked so hard to achieve.
The bear necessities of successful investing aren’t about predicting the next storm. They’re about being prepared before you hear something scratching outside your tent, and taking steps today to avoid getting kicked in the assets tomorrow.
John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions expressed here are for general information only and are not intended to provide specific advice or recommendations for any individual.
LIFTOUT
Investors should build their defenses before markets turn hostile, not after the damage has been done.
