Sunday Reflection: The Cleansing Nature of Financial "Bear" Markets

In many ways, bear markets and down economies can work as a very effective "cleanup mechanism" in a marketplace.

What often happens — in the psychological sense — is that people tend to focus more on practicalities and essentials in their lives, and they seek to lower their risk exposure. In turn, that takes a heavy toll on investment projects and companies who have managed to get by during good times, primarily on promises and hype.

Collapsing Houses of Cards...

Although I'm not necessarily a fan of Warren Buffett, I have always found the somewhat famous quote ”when the tide goes out, you discover who has been swimming naked” to be extremely poignant.

Bear markets and economic recessions are likely no fun for any of us, even if we consider ourselves to be in a pretty good financial position. However, they do offer us an opportunity to examine our investments and portfolios, and perhaps cut out some of the "dead wood" that had been skating along adequately during a really good market, but now is seriously cratering.

It's the right time to get tough.

The thing is, we invariably end up with some once-promising items that lose their shine. How does that happen? Typically, we tend to notice the really big things in life: the huge failures that make it into the public arena and is being focused on by the news media... but the effect of down markets can be felt at pretty much any scale.

"Fairweather Successes"

A lot of businesses are started when times are pretty good, and what their founders often don't realize is that their success is wholly dependent on times being good… perhaps for no reason other than they have never created contingencies for operating under any conditions other than good times.

Whether you want to call that ”bad planning” or simply a case of excessive naivete is not important; What's important is that we recognize the impending disasters and divest ourselves of them before we end up going down with somebody else’s ship... even if they represent only a small portion of our interests.

Locally Speaking...

As I look around our little community here, I'm sure the current downtrend will take its toll on some of our Hive-based initiatives, just like I feel fairly confident that we will see quite a few of our many hundreds of Hive-Engine micro projects fade away into obscurity.

Sure. we can argue that blockchain based ventures represent a "special situation" but that doesn't exempt us from living in the world. We can still wake up one day and decide "this just isn't worth sticking with, for a handful of pocket change a month."

We may not have bankruptcies in the cryptosphere, but we do have tokens tending towards zero value, with no further development taking place.

Way Back When...

Interestingly enough, I lived in Texas during the 1980s oil bust, which actually culminated in July 1986... and sent the regional economy into a tailspin the likes of which had never been seen before.

I remember talking to a friend of mine who was in the commercial real estate business. She told me how everybody had left the office on Thursday July 3rd for the long weekend with some sense of normal still going on and the phones ringing and personal calendars being full... but when people returned to work on Monday morning the 7th the strange thing about the office was the complete silence... the phones had quite simply stopped ringing.

It was like it had suddenly become clear to people that oil prices were not going to rebound from their March $10/barrel lows.

I bring this up as a final illustration because those who "shed the junk" not only avoided bankruptcy, but they were able to do extremely well for themselves by investing what they did get out in the few solid opportunities where there was a real plan for all contingencies.

Thanks for reading, and have a great week ahead!

How about you? Are you invested in anything that looks like it is not going to make it through the bear market? Are you cutting it free, or are you hoping it'll come back? Comments, feedback and other interaction is invited and welcomed! Because — after all — SOCIAL content is about interacting, right? Leave a comment — share your experiences — be part of the conversation!

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Created at 20220808 00:59 PDT
0624/1870