Beating the Bears and the Bulls

Beating the Bears and the Bulls

How to make money in up and down markets

I often hear new investors say with confidence, “I don’t have to worry about a market crash because this time things are different.”

Seasoned investors know better. They know that markets always go up and down. They know that when a bull market is hot, it will come crashing down at some point in time—and the higher a market rises, the faster and harder it crashes.

And when people are investing in companies without any profits, like they did during the dotcom bubble, that means a mania is on.

It’s nothing new

As the old wise saying goes, “There is nothing new under the sun.” That includes booms and busts.

They’re mad

Sir Isaac Newton, who lost most of his fortune in the South Sea bubble, is quoted as saying, “I can calculate the motions of heavenly bodies, but not the madness of people.”

When there is madness and everyone is thinking about getting rich quick in the market, it’s usually just a matter of time before many people lose everything. Often this is because people start investing in the markets with borrowed money, instead of first investing in their education and experience. When that happens, many people sell in a panic.

Of course, that is when seasoned investors really become wealthy, profiting on the madness of others.

Experience wins

Generally, crashes aren’t that bad, but the emotional panic that occurs at the times of such financial downturns is. The problem with new investors is that they have not yet been through a real bear market, so how would they know what a market crash and a bear market feels like, especially if it goes on for years?

As with many things, those with experience are in the position to win.

Rich dad simply said, “It is not possible to predict the markets, but it is important that we be prepared for whichever direction it decides to go.”

He also said, “Bull markets seem to go on forever, which causes people to become sloppy, foolish, and complacent.”

Today, times are pretty good for investors. The question is, are you ready for the next bear market? Because it will come, and while it’s easy to make money in a bull market, only qualified investors will make money in the next bear market.

Take advantage of this time to invest not only in the markets, but also in your financial education. It will pay big dividends when others are losing it all.

Take advantage of these Free Rich Dad tools.

Original publish date: August 12, 2014

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