Cyber Week Sale! 50% Off All Access

Don't Make These 3 Critical Mistakes When Stock Investing in a Bear Market It's easy to freak out as you watch your net worth decline by the day, but as any seasoned investor will tell you, it's important to silence the noise and focus on long-term returns. Protect your portfolio by avoiding three of the worst mistakes investors make in a bear market.

By Michael Ligon Edited by Maria Bailey

Opinions expressed by Entrepreneur contributors are their own.

The first thing people do when they see a big drop in the stock market is panic. Fear sets in, and everyone starts to react emotionally instead of logically.

Let's take a look at three of the most common mistakes investors make during a down market.

1. Liquidating long-term investments

One of the first things people do when they see big drops in the stock market is rush to sell their long-term investments. The truth is — you should probably be looking to purchase more of those long-term stocks instead of selling off the positions you have. When you take a position in a long-term investment, you need time in order to benefit from the investment. So what happens today doesn't matter as much as what happens seven to ten years from now.

Related: How To Make Smarter Safer Investments in the Stock Market

If you have additional funds, one of the options you have during a down market is to add to your long-term investments. By adding shares, you bring down your initial cost basis, which provides you with a better entry position. For example, if you have 100 shares of XZY company at $50 per share and the shares drop to $30 per share, purchasing 25 more shares would bring your cost basis to an average of $46 per share. That's a $4 gain per share from your initial position on 125 shares.

Now, why would you want to add to your long-term positions if the market is falling? Well, that brings us to mistake number two.

2. Thinking the market will continue to fall forever

Many people overreact to major swings in the stock market because they don't understand how the market moves over long periods of time. Since 1928, the S&P 500 has reportedly experienced 26 bear markets. The average loss of stock value was approximately 36% each time. Bull markets have always followed a bear market, and during a bull market, the stocks gain approximately 114%. History shows us that there's a benefit to holding and possibly adding to your long-term investments during bear markets.

Related: Using MarketBeat Market Data Tools To Find Strong Stocks in a Bear Market

The stock position's growth during a bull market exceeds the stock position's losses during a bear market. So why do so many people lose money investing in the stock market? That brings us to mistake number three. Not understanding a long-term investment versus a short-term investment.

3. Overlooking the difference between a long-term investment and a short-term investment

When you take a position in a stock for a long-term investment, time is your ally. The major U.S. stock indexes — including the Dow Jones Industrials, S&P 500 and Nasdaq — have all trended upward since their inceptions. Even after historic bear markets like the Great Recession, the "Black Monday" crash of 1987 and even the Covid-19 pandemic. Based on all historical data, entering into a long-term investment in a U.S stock index should yield a profit over time. Warren Buffett, the ultimate buy and hold investor — and one of the greatest investors in history — is famous for picking fundamentally strong stocks that are trading at a discount to their intrinsic value during bear markets. His approach to investing is perhaps best summarized by one of his most famous quotes: "Be fearful when others are greedy, and be greedy when others are fearful."

Related: How To Start Investing

So how do so many people lose money in the stock market? That answer can be found primarily in short-term investing. Because of the volatility in the stock market, short-term investing can be very dangerous. As previously stated, if you invest in a major U.S. index for more than seven years, there's an excellent chance you'll have a profitable investment. However, when you invest in random companies for short periods of time, there's a much bigger risk of losing money. Even major blue-chip companies have good and bad days. Suppose you are entering and exiting your positions on a short-term basis, like, monthly or daily, you may get caught up in a bad day, resulting in a loss of money from your investment. The biggest issue with investing on a short-term basis is experience. If you are a seasoned, experienced stock trader, you can make a very profitable living trading short-term, but as the old saying goes, "the bigger the risk, the bigger the reward."

Related: How To Make Smarter Safer Investments in the Stock Market

Long-term investing is still the best way to beat the market

In conclusion, when investing in the stock market, you have to be prepared for ups and downs — bull markets and bear markets, good days and bad days. If you have the experience, you can take calculated risks on short-term investments. However, if you want to play it safe, based on all historical data, you can't go wrong with a long-term position in a major U.S. stock index. The average bear market lasts approximately 289 days or just under 10 months, and the average bull market lasts around 973 days or 2.7 years. But, let's not forget the longest bull market in history, which lasted from 2009 to 2020 and resulted in stock growth of more than 400%. So remember, when in doubt, time is on your side.

Michael Ligon

Author, Entrepreneur, Real Estate Investor, Stock Trader

Michael Ligon is an entrepreneur, real estate investor, stock trader and co-founder of The Ligon Group. He is best described as an inquisitive polymath and has been labeled "The Fixer" for his ability to uncover and resolve issues facing struggling businesses.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

'I Just Hustled': She Earned More Than $300,000 Wrapping Gifts Last Year — and It All Started With a Side Hustle

When Michelle Hensley lost her husband to cancer, she needed to figure out how to earn an income for her family.

Science & Technology

You Have 1 Month Left to Prepare for These 5 AI-Powered Marketing Changes — Act Now Before It's Too Late.

Big changes in 2025 will redefine marketing as AI evolves rapidly, offering growth opportunities but also risks. Learn how to stay ahead in this week's video, covering new search platforms and avoiding over-automation.

Leadership

How to Master the Art of Delegation — Lessons From Andrew Carnegie's Legacy

Here's what Andrew Carnegie can teach today's entrepreneurs about leadership, teamwork and effective delegation.

Growing a Business

This Breakthrough Technology is Poised to Accelerate Your Company's Growth

Discover a breakthrough technology stacked on top of generative AI, now poised to revolutionize businesses across nearly every sector. Unlock unprecedented growth and profitability potential, achieving levels once thought unattainable.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.