Navigating Fear: Lessons from Great White Sharks and Bear Markets

Navigating Fear: Lessons from Great White Sharks and Bear Markets

By Justin Carbonneau (Twitter LinkedIn YouTube) —

I was away at Cape Cod last week with my family.  There was lots of beach time, but I had a ringing in my ear of the last few phone calls with my mom. “Be cautious,” she said, “Great Whites can come a lot closer than you think. I don’t think you and the girls should go in the water.

The Cape, renowned for its picturesque landscapes and vibrant marine life, is also a hotspot for great white sharks, often attributed to the presence of seals, a top meal for these oceanic predators. While rare, great white shark sightings are common enough to incite fear among beachgoers and in truth they have been ticking up in recent years.

There is even an app for tracking Great Whites and shark sighting – Skarktivity – it’s very useful in that it shows shark sightings along with dates and times so beachgoers and others can plan accordingly and venture to parts of the coastline they feel most comfortable. Below is a snapshot of sharking sighting over the past month, so as you can see the Great Whites and other sharks are certainly in and around the Cape. 

Decipher True Risk from Sensationalism

Let me first say, shark attacks and bear markets are completely different animals. In a shark attack, you can easily lose your life. In a bear, you may realize losses on your portfolio but we’re not talking life and death. Most long-term equity investors will see multiple bear markets in their lifetime, while most people will never see a shark (accept maybe by using Skarktivity), and some ultra-low percentage of people may witness a shark attack (which is terrible and terrifying). So while they are very different from a statistical standpoint, they are similar in that the media often capitalizes on dramatic narratives to draw attention, and while it’s essential to stay informed, it’s equally crucial to decipher between genuine risk and sensationalism. The fact is, great white shark attacks are incredibly rare, and the odds of falling victim to one are minuscule. Similarly, bear markets, while inevitable, don’t occur as frequently as one might think, nor do they necessarily spell financial ruin for all investors.

The Downside of Staying Out of Water

Since 1837, there have been 15 recorded shark attacks in Massachusetts, but over the last 10 years we’ve seen a larger cluster of attacks, which certainly raises concerns and fear levels, but as humans we are swayed by emotions and magnify perceived threats. Just as beachgoers might stay out of the ocean due to the ultra-low risk of shark concerns, a threat of a bear market looming on the horizon often compels investors to retreat from the market or get out altogether, thus missing much of the returns that a bear market might give you.

Source: Shark attack history on the Cape and all along Massachusetts: More frequent attacks, but extremely rare

Investors who sit out of the market due to perpetual fear of a bear market might end up missing out on the potential gains that come with the inevitable market rebounds. The key, as with dipping your toes into the ocean at Cape Cod, is informed caution rather than outright avoidance. Just as beachgoers can learn about shark behavior and strategies for reducing risk while swimming, investors can educate themselves about market cycles, diversification, and risk management techniques to navigate the complexities of investing.

Swim Where the Sharks Aren’t

On one of the days, we went over the bay side of Cape Cod, First Encounter Beach (pic below), which has a sandbar that seems to go a mile out at low tide. The water is warm, it is shallow, there are no seals and no sharks. You don’t always have to swim, or invest, where the risks are but also understand that you’re not going to catch the big wave and ride it in. But maybe that is the peace of mind that’s best for you and you are willing to give up that upside for something smoother and safer.

What’s Lurking and How Do You React to It? 

Swimming in any ocean comes with risk, just like in investing. In the markets there is always something lurking out there, something we can’t see, something that might shift us off course. But often times investors spend too much time worrying about those unknowns and less time realizing that time in investing is on your side and that the bear markets, unlike some shark attacks (which are extremely rare), are mostly recoverable. I get why most people along the seashore stay up on the sand, looking at the waves and enjoying the sound of the ocean. Part of it is out of enjoyment, but part of it is an out of fear, a fear that will never come true for the vast, vast majority of people. But they accept not going into the water just like those who go in, enjoy it, accept the risk and understand the odds.

Picture below is me and my girls at Nauset Beach, Cape Cod – don’t show my mom!

Justin J. Carbonneau (@jjcarbonneau)
VP at Validea & Partner at Validea Capital Management
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