The Best Way To Survive A Bear Market? Some Say, "Do Nothing"

This educational guide exploring How To Protect Crypto Assets in a Bear Market was created in conjunction with Caleb & Brown. Caleb & Brown is the world’s leading cryptocurrency brokerage. Learn more here.

Between 2007 and 2009, the SPDR S&P 500 ETF SPY declined by 56.8% — the greatest price fall in the exchange-traded fund’s (ETF) history.

Few could prepare for the psychological toll of that kind of drop. At the time, many had been informed that index funds and ETFs were safe bets. Undoubtedly, professionals would have informed investors that the S&P 500 had survived two world wars and presidential assassinations, and that the 2008 crash, in due time, would be just another addition to that list. 

Without help from professionals, it takes substantial willpower and courage to stop emotions from taking over during tough times. However, it is the decisions you make at these pivotal moments that could define the trajectory of your wealth. History tells the story in vivid detail: Since the SPY’s apocalyptic decline between 2007 and 2009, the S&P 500 has increased by more than 450%. 

In a world which celebrates quick fortunes, it takes a special kind of person to appreciate the value of time as a compounder of wealth. For business magnate Warren Buffett, times of crisis represent buying opportunities. In a 1997 letter to shareholders, Buffett wrote, “Smile when you read a headline that says: ‘Investors lose as market falls.’ Edit it in your mind to, ‘Disinvestors lose as market falls — but investors gain.’”

Investors gain by getting bargains and avoiding the panic sell. Here’s how to do the same. 

Average Wins Versus Losses In Bull And Bear Markets 

The stock market’s history and the figures surrounding bull and bear markets support the argument that time is a great investing tool. By widening time horizons, traders and investors can avoid panic selling in times of crisis and maintain low-cost positions in anticipation of the next bull market. 

Here are some figures to support this idea: 

• According to Hartford Funds, stocks lose 36% on average in bear markets and gain 110% on average in bull markets.
• There have been 26 bear markets – as defined by a drop of over 20% – in the S&P 500 Index since 1928, and 27 bull markets. On average, bull market gains far outweigh bear market losses. 
• The average length of a bear market is 289 days (0.8 years), while the average length of a bull market is 991 days (2.7 years). 
• In 98 years of market history, stocks have been on the rise 78% of the time. 

The image above depicts the S&P 500 ETF’s price trajectory since inception. Picture from TradingView.

The figures above are in line with the idea of an ever-growing economy with occasional drops — corrections or recessions — ultimately fueling future growth. This is reflected in the cryptocurrency market, as well. Holding Bitcoin (BTC) and Ethereum (ETH) over any five-year span has always resulted in financial gain. 

Avoiding The Panic Sell? 

In his book “The Psychology of Money,” Morgan Housel says, “A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence.” 

One of the greatest behavioral skills the long-term investor can develop is the ability to do nothing in times of crisis. While seemingly counterintuitive, the figures above, and the greatest value investor of our time, tell us this is sound advice. Acting rationally on this information, however, can be difficult when emotions are tied to investors’ money. Objectivity, patience and calm are key. 

For Caleb & Brown, the world’s leading cryptocurrency brokerage, providing investors with education and professional guidance is a fundamental business value. Unlike exchanges and other brokerages that just provide a platform to execute trades, Caleb & Brown offers personalized service, and is available 24/7 to help clients better understand and navigate the crypto markets through bearish conditions and bull runs.

When emotions start to take control of the wheel, it never hurts to have a professional who’s just a phone call away by your side. Make sure you’ve got the guidance you require to help you avoid the panic sell.

Click here to learn more about Caleb & Brown. 

Interested in learning more about the similarities and differences between crypto winters and bear markets? Check out the previous article in this series here. 

Featured photo by Alex Shute on Unsplash

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