Seasons change and so do investing strategies, but one thing remains constant throughout the year and through the generations: markets move in cycles and nothing goes up forever. Sure, the stock market tends to go up over the very long term, but there will always, sooner or later, be seasons of decline and downtrend.

And seasoned investors know how to deal with seasons – how to manage and navigate those “winter” months when gravity takes over and a distinctly risk-off feeling pervades the economy and markets. This is not necessarily something that happens in October, November, or December; market “winters” can strike at any moment, and can last for years on end.

Hence the saying: Winter is coming. It’s always true, and while we can’t predict exactly when the investing community will tank the markets, we have to be prepared for the eventuality of inclement weather, harsh conditions, and the icy chill of a secular bear market.

Courtesy: variantperception.com

What makes investing so tricky is that there’s no almanac or weather report to tell you exactly what season we’re in. We do know, however, that before every winter is an autumn: a time when bull markets get long in the tooth and we know that winter is coming but we’re not quite ready to let go of the easy, breezy days of fresh all-time highs and worry-free profits.

The telltale sign that we’re in the autumn season is a relentless, uninterrupted bull trend that continues year after year regardless of the macro political or economic climate – followed by a sudden bout of volatility which rattles the markets because investors have been lulled into complacency for so long.

S&P 500 Index Chart. Courtesy: barchart.com

Autumn gains tend to be muted, with an unfavorable risk-to-reward ratio: investors are essentially trying to pick up nickels in front on an oncoming steamroller. And for the unaware and unprepared, the winter that follows the fall can result in staggering and even life-changing financial loss.

But that needn’t be your outcome – and in fact, you can embrace winter’s onset instead of dreading it. Market downturns are only fearsome for the overinvested and under-hedged: is your portfolio steeped in blue-chip stocks and light on commodities and other “alternative” non-correlated investments?

Moreover, do you have enough “dry powder” or available cash (or at the very least, liquid assets that could quickly and easily be converted to cash) to allow you to capitalize on the tremendous opportunities that come during the wintertime?

S&P 500 Index Chart. Courtesy: barchart.com

Investing legends like Warren Buffett and Charlie Munger have netted billions from market cycles, taking positions when there’s “blood on the streets” and the media’s perpetuating fear and uncertainty. Indeed, it’s fair to say that great investors love the wintertime, probably more than any other season.

If the markets only went up – i.e., if spring were the only season, all year long – the stock market might be “easier” but it wouldn’t last very long because there cannot be buying without selling sooner or later. Buying and selling are the yin and yang of the markets and the economy, two sides of the same coin in a commerce-based system.

I’m prepared for the winter and not worried about when it will arrive or how long it will last. If anything, I’ll be welcoming the winter with open arms – for winter isn’t just the end of a good year, but the beginning of an even better one.

Ace Bauer
Chief Editor, SmartMoneyResults.com