Perhaps the most important key to the long-term success of your stock market strategy is whether you will stick with it through a bear market. That’s because you can have the theoretically best strategy on the planet and still lose money if you bail at the bottom of the next bear market.
Interestingly, most everyone at least implicitly recognizes how worthless those questionnaires are. Wade Pfau, professor of retirement income at the American College of Financial Services, recently conducted a survey of attitudes towards risk questionnaires and found that 95% of financial professionals found them ineffective, while 82% of individual investors shared that belief.
There is no shame in realizing you don’t have the stomach to stick with an aggressive strategy through a bear market. The only shame, if there is any, is lying to yourself about it. Those newsletter editors who were most aggressive at the market top were, on average, unable to take advantage of that opportunity. As Claude Erb, a former fixed-income and commodities manager at mutual-fund firm TCW Group, put it to me once in an email: “The people who can truly stomach the volatility of a 100% stock portfolio are either catatonic or dead.”
MktwHulbert Hide under a rock
MktwHulbert The recession has already commenced: