We have just passed the mid-year mark of an utterly brutal year thus far in all sectors of the stock market. Despite evidence that inflation indicators are beginning to slow down and/or reverse their trends the market is telling us that we still are not out of the woods yet.

I think we may be approaching a dangerous time for investors who, rightfully so, are probably experiencing fatigue in the face of current events over the past 2-3 years: we’ve had the pandemic whose variants keep coming at us; the election that refuses to end; the frustration of supply chain shortages; historically high gas prices as well as inflationary prices across the board; and a war that’s difficult to rally around but is being blamed for much of our problems.

Why am I calling this a dangerous time? Because when fatigued the investor is more/most likely to capitulate, exiting out of the equity markets and into the illusory safety of cash. (When inflation is running at 9% and cash is paying 1-2% it is illusory to call cash safe.)

Last month I referred to this period as “gut-check time”. We have two choices as investors. The first choice is to sell our equity holdings into the Bear Market that has seen our holdings decline 15-20% (not knowing how much more they might decline), thereby destroying one’s chance at lifetime success.

This choice must be urgently rejected. Our second choice is to hang onto our holdings and even add to our positions with our available cash. History shows that the equity markets recover their Bear Market losses within a relatively short period of time after reaching a bottom. And then the markets tend to go on a run of newer and newer highs. Remember, as I mentioned last month, that the legendary investor, Shelby Cullum Davis, remarked that successful investors make most of their money in Bear Markets although they may not realize it at the time.

Let’s refresh our memory about the market during the last big recession in 2007-2008. Referencing the S&P500 index, the market declined 56% during the 1.5 years between October 2007 and March 2009. From the bottom on March 6, 2009, the index took 4 years to get to its previous peak, finally breaking even in March 2013. But by Christmas Eve of 2021, in the 8.75 years since March 2013, the index tripled in value (sextupling in value if measured from the March 2009 bottom).

Remembering this history is why we want to continue to hold our positions. We want to be owning our shares after the market makes its bottom. Since we don’t know when the market will bottom out we had better be owning our shares before the bottom is reached.