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The Economy & Investing
3 Crucial Lessons From History’s Worst Bear Markets and What They Can Teach You About Investing Today
Despite being an unpleasant, inevitable, and a necessary part of the market cycle — bear markets can teach us a lot about investing
Investors have long memories. And for good reason.
We remember the good cycles, as well as the bad ones. When the bulls get massacred by the hungry bears.
And it’s these bad market cycles where we can learn the biggest — and the most crucial — lessons about investing in financial assets.
By studying the most devastating bear markets in American history, we can learn a lot. We can learn what to avoid. And we can learn how to better position ourselves for the next economic downturn.
Here are three key takeaways from the most ravaging bears in history.
1. Don’t buy into the hype without educating yourself first
Over two decades ago, the Dot-com bubble burst.
And the hype about the future of the Internet fueled overvaluation in many Dot-com tech companies. Investors were buying into these darling companies without really knowing anything about them. They just saw the potential (and, of course, sparkling dollar signs) and blindly threw their money at them.
The result was disastrous.
For individual investors, it was a bloodbath. From 2000 to 2002, Dot-com companies collectively lost 83% of their value. Pets.com, Webvan.com, theGlobe.com, and eToys.com were some of the most promising companies to go under.
Of course, there were some companies that survived the crash. Like Amazon. But they were the exception, not the rule.
The vast majority of Dot-coms went up in smoke.
What can today’s investors learn from the Dot-com bear market?
For starters, do not buy into the hype. When there is too much hype around a company, a sector, or a financial asset, it’s often a sign that things…
