Economist Hyman Minsky once wrote that stability leads to instability. The more stable things become, and the longer things remain stable, the more unstable the system gets until that eventual crisis hits.
That makes sense. When there is never a risk in sight, when everyone is fat and happy is when the potential of instability is the highest. Bad loans get made. Misallocation of capital is rampant. Businesses that should not exist, exist.
Bear markets that usually precede recessions are a required process to weed out those excesses. They are normal. They help capitalism thrive. They must intermittently happen.
There is no technical definition for a bull market because no one complains when stocks go up. But a bear market is when stocks go down 20 percent or more. Why 20 percent, we don’t know, and we don’t care.
But bear markets allow us to buy businesses that are temporary on sale. We own businesses through our stock ownership.
And the longer-term trajectory of the value of global business is up. It must be up. We all go to work for our respective employers each day, every day to make them more money today than we did for them yesterday, last month, last year.
So as owners of these businesses, we are bound to profit from the collective efforts of millions of our fellow human beings who toil day in and day out to better our world and make us money in the process.
So spread your savings wide and deep and keep on dollar-cost averaging into your plan. No one can consistently predict when bear markets come but they eventually end. They will end.
Cover image credit – Scott Webb, Pexels