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Investing Specialists

The Bear Market Ahead

Keeping your emotions at bay in a bear market is paramount.

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This too shall pass...

As I wrote in a recent GrowthInvestor blog post, I'm pessimistic about the potential for equity returns this year. A consumer-led recession will have a substantial effect on corporate profits, and the depressive atmosphere of a bear market will weigh on the multiples that investors are willing to pay for those profits. I want to prepare you, at least psychologically, for what is coming in the short term, but it's also important to remember that this too shall pass. The economy will take its lumps as misallocated capital is destroyed, but then the creative forces of capitalism will again be ready to take hold. It's hard not to be a long-term optimist.

Bear markets are painful and emotionally grinding, but they also present us with exceptional investment opportunities. There is an old saying that you make all your money in bear markets, you just don't know it until later. The key, however, is to keep your emotions from forcing you into bad decisions. Today, I want to talk about the emotions that suffuse a bear market, and how I believe GrowthInvestor's Growth Portfolio will be affected by a recession. If you can understand what is coming, you will be able to make decisions with your head, rather than succumb to that sinking feeling in your stomach.

Toan Tran does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.