On Wall St., Feeling Crummy Is Contagious. Here's How to Climb Back Up

When you feel the worst, so does everybody else. That line really sums it all up. Almost everyone feels fearful and depressed right after major selloffs, like the one we just had. All five of the previous best buying opportunities came with the S&P 500 trading well below its 200-day moving average. By definition, investors felt intense pain on the way there. Each of those five periods were linked to macro-economic factors that were quite real. October 2008 followed the Lehman Brothers bankruptcy and the bursting of the subprime housing market. The late 2010 through early 2011 market bottom had two major catalysts. Greece was on the verge of bankruptcy and had to be bailed out by the European Union. Here in America we were watching live the debt-limit negotiations unfolding on TV. The first 75 days of 2016 marked the worst start to a calendar year ever for the S&P 500. We had the dubious distinction of breaking that record here in 2022. From Thanksgiving through Christmas Eve of 2018, the Federal Reserve Bank began aggressively raising interest rates, tanking the market badly in just five weeks or so. March of 2020 saw Covid-19 hit our shores, triggering self-inflicted wounds to our economy, worse than anything we could have imagined. This year's very painful first half occurred from the confluence of a significantly overpriced market overlaid by the latest bout of aggressive Fed tightening. What did those previous bear markets teach us? By the time you can't take it anymore it's almost always too late to sell. The best bargains only come available when most investors/traders have become very, very scared of further losses. It's then that they'll give up great shares just to ease their pain by lightening up or exiting equities completely. Bottoms form in the absence of good news. Trees do not grow to the sky. Stocks only go down so much before they become too cheap to keep falling. If you wait for positive momentum or improving economic news you will have missed the easiest, and largest percentage gains. There has never been a bear market that didn't resolve itself on the way to new all-time highs. Over the past 15 years, rebounds happened faster and sharper than most media talking heads and analysts thought possible. Who would have believed how quickly stocks recovered from the dire situation in the spring of 2020? The chart above shows that the end of the June 21 low saw the S&P 500 at its lowest point, relative to its 200-day moving average, since March 23, 2020, which was the low from which we got the last huge rally. The late Marty Zweig had a couple of great sayings back in the 1980s: It's OK to feel like everybody else. It's not okay to act like them. It's OK to be wrong. It's not OK to stay wrong. If you're scared to death concerning stocks, or world events, right now it's perfectly normal. Don't act like others, though, in selling just as we are approaching the inevitable turning point. If you made mistakes in stock selections that you no longer have faith in, consider biting the bullet and cashing out of them. Rather than hoarding the cash, though, simply redeploy into other better choices to position for the coming rebound. Selling out of bad performers has distinct advantages. Getting them off your statements is like removing a cancerous tumor. You'll stop beating yourself up over a poor decision when you no longer have to look at it daily. Getting the money to reinvest sets a whole new mental state if you pick up some bargains with the proceeds and start seeing positive results. Those two steps can change your whole attitude. I've been badly hurt so far in 2022, but remain fully invested and optimistic on the second half and beyond. If you know what your stocks are worth, it's easy to stay with them. I've cashed out both winners and losers year-to-date to optimize my chances for a large rebound. I also converted a major amount of money from my traditional IRA to my Roth IRA.

On Wall St., Feeling Crummy Is Contagious. Here's How to Climb Back Up

When you're scared or miserable, so is most everyone else around you. But instead of wallowing in your emotions, position yourself for future profits.

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