Before getting into the details of bear market mathematics, I want you to ask yourself a question: “How much downside are you capable of experiencing in an investment (as a percentage) before you will panic and sell everything?”
Go ahead – give it a few seconds of thought! ( and be honest to yourself! no one is listening)
In my experience two things usually happen whenever I have asked this question
- Most people consciously overestimate the percentage figure for the possible loss in investment value that is acceptable to them.
- at the same time they subconsciously underestimate the absolute value that their selected percentage figure will represent in an actual investment portfolio.
For example, many people comfortably say that they can tolerate a 30% decline in investment value before they start to worry (the word panic is probably more accurate). However, if you were to …