After a string of strong performances on the stock markets since October 2020, many experts are warning about the potential risks of selling stocks now. While pessimists are shrieking about the potential for a brutal bear market, it is important to consider the possibility that the current bear market may have already ended and a new bull market has begun. Selling stocks too early could lead to a missed opportunity for investors to benefit from the compounding gains in the future.
The pervasive pessimism around the stock markets is part of the “Pessimism of Disbelief” that has been feeding widespread disbelief in the recent rally. While there are certainly concerns about inflation, interest rate increases, and geopolitical tensions, many of these concerns are priced into current stocks prices. The fear upon fear mentality tends to overestimate the downside risks, so even bad outcomes are considered bullish if they exceed expectations.
The expectation of utter doom around inflation, for example, has been misplaced. While prices are still rising, the irregularity of post-June downtrend has shown that fears of a 1970s style inflation seem unlikely. Economic growth is another concern. While fourth-quarter eurozone gross domestic product grew by a paltry 0.4%, it still exceeded dire recession worries. These early-cycle positive surprises have driven the stock rally since last autumn.
While nobody can predict the future of the stock markets, selling stocks too early in a bull market risks missing out on the compounding growth that typically occurs. The S&P 500 has a strong correlation with global stocks, indicating that the trend of overpowering bear markets is consistent across the world. The median gains for bull markets average 158%, while declines during bear markets typically average 28%.
Waiting for scary stories to subside before re-entering the market raises the question of when to re-enter. Waiting indefinitely risks missing out on the powerful early gains that fuel compounding, long-term portfolio growth. In short, staying invested throughout a bear market does not doom portfolios, but missing out on a bull market’s early gains could have a significant impact on long-term wealth. Investors are therefore advised to stay bullish and take advantage of the current stock market rally.
عبدالرحمان زمین پیما
Author
آرمان جعفری
Author
