Am I afraid of a bear market?
Might the only recession we have to fear be one triggered by recession fear itself? It’s possible that we could talk ourselves into one.
Dr. Ed Yardeni
Ed Yardeni is an influential investment strategist well known for his long-term track record of accurately forecasting the outlook for capital markets. The foregoing quote is from his Daily Briefing on May 25, 2022 in which he assesses the probability of a recession-induced bear market.
As I ponder the likelihood of a bear market, I am reminded of a different sort of bear story. In my undergraduate university days, I spent the months between school years working on a survey crew in remote parts of British Columbia and Alaska. On one occasion, I suddenly became aware of a bear heading toward me as I walked along the survey line! Succumbing to fear, I immediately dropped my equipment and climbed a nearby tree. Fortunately, the bear continued on his way and, after retrieving my equipment, so did I. Subsequently, I learned one should never climb a tree to escape a bear, since they are excellent climbers! Rather, the best approach is to frighten them by making lots of noise, waving arms, and moving in their direction.
Investor behavior is often driven less by a dispassionate assessment of their investment portfolio in the context of their long-term objectives and risk preferences and more by an emotional reaction to market volatility.
The point is that fear is a common emotional response to encounters with both bears and bear markets. And just as my fearful response to an approaching bear was inappropriate (though happily without cost!), an investor’s response to an approaching bear market can likewise be inappropriate. Indeed, investor behavior is often driven less by a dispassionate assessment of their investment portfolio in the context of their long-term objectives and risk preferences and more by an emotional reaction to market volatility.
As a result, investors often buy high when markets are going up and sell low when markets are going down. In the former instance, they are influenced by the fear of missing out and, in the latter, the fear of losing more. Taken together, these two fears cause many investors to act irrationally, which inevitably results in poor investment performance.
Like all emotions, fear is a byproduct of thoughts. If our thinking is correct, the resultant emotions are less likely to result in bad decisions. And this concept has direct applicability for followers of Jesus. If our thinking is solidly anchored in the Word of God including who we are in Christ and our eternal destiny with Him, we have a special advantage when confronted by market volatility. In particular, God has assured us that, as we put His priorities first, He will provide for all our needs. Thus, the ultimate security of believers is in His promise of provision, not our investment portfolios, businesses or employers.
As Paul told his student Timothy, we have been liberated from a spirit of fear and have instead been filled with a spirit of love, power and a sound mind. Of all people, we should be able to respond appropriately during the volatile markets we are currently experiencing. Having been through many down markets over the course of my lengthy investment career, I have never once succumbed to fear of financial loss because I know the One who is protecting me.
How about you? Where is your security?
