27 January, 2022 Tax Planning

What to Do in A Bear Market

What to Do in A Bear Market

There’s nothing like a bear market to kick off the New Year.

As I write this, the S&P 500 is down 7.73% year-to-date, while the Nasdaq is down 9.03%. If you’re invested in many of the high-performing stocks or sectors from the last couple of years, you’re likely hurting a lot more. For example, Cathie Wood’s popular Ark Innovation ETF is already down 24.3% this year, and overall, down over 50% from its all-time high.

Lots of investors right now are probably trying to figure out where to go from here.

For the vast majority of the people, the correct answer is to do nothing.

It never feels like it in real-time, but volatility like this is completely normal and happens more often than people remember. After a while, they become minor blips as stock markets eventually recover, and continue growing.

Ben Carlson recently wrote a great piece showing how dating back to 1928, the U.S. stock market has had a double-digit correction two-thirds of the time.


Volatility happens in the stock market. It’s unavoidable. It’s the price you pay for the long-term growth stocks provide over bonds.

To further illustrate, here is the performance of the S&P 500 since 1982.

Black Monday, the dot com bubble, 9/11, the Great Financial Crisis, and Covid all hardly register. The point is that while bear markets suck in the moment, they all eventually pass.

One caveat? If, like a lot of investors you became highly concentrated in some of the high-flying stocks in the last couple of years, now is a good time to take a reality check, and reconsider what you own and why you own it.

These are the stocks that are truly getting crushed now. To name a few, Shopify, Peloton, and Docusign are down 48%, 62%, and 83% respectively from their all-time highs.

Unfortunately, many were lured in by the allure of easy money, and stocks that seemed like they could only keep going up. Use this as a lesson that the price you pay for a stock does matter. Many of these companies remain strong businesses that have transformed the world. Some of them will come back, and today will eventually look like a great buying opportunity. However, a lot of the stocks simply became way too detached from the real value of the businesses.

So, if you don’t fit into this last group then what should you be doing right now? Here are some things you can do that will help you avoid doing something you will later regret:

  1. Stop checking your investment accounts: This may seem counterintuitive, but most investors check their accounts way too much. The stock market can do crazy things in the short term, and constantly checking your account increases the chances that you will do something impulsive out of emotion. There is a reason studies show that most investors underperform the investments they own.
  2. Revisit your plan, and why you own what you do: Clarity leads to confidence. If you understand what you own, and why it will help you reach whatever financial goal you’ve set for yourself then you are much less likely to make a panic move. If you don’t understand what you own, and only bought it because you saw other people making money from it then you are more likely to panic when it starts going down.
  3. Stop reading the news: Bad news sells better than good news. That’s why the news you consume is likely overwhelmingly negative than what is warranted by reality. This can help lead to a negative market outlook that is not grounded in the reality of the mostly understated positives that people ignore.
  4. Look at this as a positive: If you’re automatically saving and investing a portion of every paycheque like you should be then you’re going to be buying stocks while they’re on sale. Stocks are the only thing that people want to buy more of when they increase in price.

If you’re feeling unsure about where you’re at right now, please feel free to reach out. I’d be happy to chat.