How much experience does it take to truly master the art of investing?
3 years?
Not a chance. In the last 3 years, markets have been riding high without even a 20% correction. It’s been more like a joyride than a test of skill.
How about 5 years? We saw a market decline due to Covid in 2020 that threw us all in a loop. Shouldn’t it count?
I don’t think it should count. You see the market went down sharply by about 35% and was up even faster (by 100%+) than the decline in a matter of 2-3 months. I will not call it a decisive market trough, but a blip in the upward bull cycle. Nobody suffered the real pain of a bear market at that time.
How about 10 years? Well, again it was a one-way upward journey without a decline of more than 20% (barring the Covid blip).
To my mind, anyone who has been investing for the last 20 years can truly claim a seasoned investor status. And much better to have an investment experience of 25 years under the belt.
Because in the last 20 years, you would’ve weathered the storm of a real bear market. Picture this: your investment value slashed by 60% in the crash, taking over 30 months to claw back to peak levels last seen in Jan 2008.
And if you’ve got a quarter-century of investing experience, you’ve also survived the post-IT meltdown of over 4 years (2000-2004) and a market decline of 56%.
Therefore, unless you have closely experienced at least one proper bear market, you are not experienced enough to handle the vagaries of the stock market.
But there is a way out if you haven’t faced these trials firsthand. You can still learn from history. Study market cycles, talk to those who’ve been through the cycles, and adapt your strategy accordingly. Just don’t follow the herd!
Will the bear market ever come? If history is any guide, bull and bear markets are inevitable. Nobody can predict the exact timing of it.
It’s worth remembering that the underlying situation for market cycles keeps changing. The only constant thing is human behavior of greed and fear.
Originally posted on LinkedIn: www.linkedin.com
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