It would be nice to anticipate when the market reaches its high point, sell everything, wait patiently for the next crash, with people panicking, and then buy everything back at the low point when the market starts to rise again with frightening force. This is what every investor dreams about, but the reality is quite different. Throughout history, we have had several Bear Markets. No-one will be able to know if and how this correction will turn into something worse, but as a great investor said, you cannot predict, but you can prepare. So, here are some important things to remember about a bear market:

• Very high volatility
• The ‘masses’ go more crazy than on other occasions
• After the collapse, the rebounds are strong
• There can be strong rebounds even during the collapse, then down again
• Expected returns rise
• Affects 99% of investments

Regarding psychology and mass behaviour, markets are a mix of greed, hope, fear, and impatience, all characteristics that in very volatile phases are accentuated and can lead us to make mistakes. Additionally, as almost all asset classes (except cash and a few others) fall in the worst of times, we really feel we have no way out except to sell everything, and that is the worst mistake. What happens after a bear market, however, is just as important: the markets rebound, and they do so violently and quickly. That’s why it’s important to BE INVESTED when that happens, and that’s why unfortunately many investors don’t perform in the markets because they are out (having sold) of everything at that time. Looking at the positives of bear markets, as mentioned above, we certainly have a number of aspects to consider: When prices fall, instead of focusing (although I know it’s not easy) on the falling prices, we should focus on the fact that expected future returns (and risk premiums) increase considerably, so what is actually happening is that you are creating a very favourable environment for investing your money. You cannot predict it, but you can prepare. Knowing this, what we can do is prepare both emotionally and strategically. Knowing as an example that the maximum duration of a bear market has been of 31 months (dotcom) and that the worst decrease could be for an example 60-65% (subprime), it could be thought to invest the quota of cash (some as an example still have 25% of liquid portfolio) to stagger previewing is entered on base time (every 3 months in bear markets) and percentage (some enter with “x” to every decrease of 15%). There is no single best strategy, but the important thing is to be aware of all of the above, to be prepared, and to be found invested when the markets resume.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of May 2022 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.