Bear Markets vs Bull Markets: Minimize Losses or Maximize Gains

Bearish and Bullish Markets can be described by two distinct principles: Minimizing Losses and Maximizing Gains. Their namesake could be derived from how they choose to digest their food.

Bulls have a specialized digestive system that allows them to digest nearly any kind of plant as nourishment. They constantly feed and regurgitate and feed again, never stopping to rest. They're domesticated, and as such rely on outsiders to keep them healthy and comfortable from the elements. A Bullish Market constantly goes up as the food (money) is plentiful and signals strength and stability in the economic environment. If the economy is going up, the Bull's strategy is to take as much gains as possible. The Bull stuffs themselves with investments and makes liberal use of leverage to get ahead, putting more of their earnings into the market in an effort to capitalize on the upturn.

Bears are omnivorous, and as such can digest nearly anything they could get their hands on. They fatten themselves to prepare for cold winters, and are generally solitary animals living in unpredictable and harsh environments. A Bearish Market constantly goes down as the abundance of food (money) dwindles and the need to fortify one's investments through low-risk assets and securities increases. Bearish Markets go into hibernation as productivity slows and economic activity weakens. Few opportunities for capitalization exists. Interest rates for loans rise as the risk to find enough food before winter becomes dire and consequence of failure amplified. Bears fatten up with low-risk, high-liquid assets on hand and buying into cheap, sustainable investments until the winter market has gone.

Given any market condition, which would prevail? The Bull or the Bear?

One could argue that Bulls over the long run would fare far better than Bears. After all the S&P 500 averages around a 7-10% each year for its entire history, booms and busts included. Simply beating that average return per year is enough to stand out among the herd. Another argument for Bears could be made that most fortunes were made during times of recession, and by capitalizing on good value assets, one can stand out on top of the pack.

Yet as it turns out, neither of them fare better than the Buy-and-Hold investor. Buy-and-Hold simply invests money whenever and wherever they could into strong, stable assets that are good in any market condition. They maximize gains by keeping assets during the upturn and minimize losses through their continued investments in the downturn. Essentially they are the best of both worlds. Buy-and-Hold investors continually and regularly invest into the market regardless of its condition, and by doing so, they effectively become resistant to the effects of a stifled growth in Bull markets and the rapid decline of Bear markets. By averaging their asset costs through purchasing the same asset across an extended period of time, they stay ahead of the herd during good times while keeping on top of the pack during bad ones.

Thereby, if it is possible to obtain the best of both worlds, why only go for one? Keep investing and keep one's investments, no matter the condition. Only the ones that thrive in both worlds become hope to become the apex predator of one's finances.


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