Just remember back in 2009 when the market had already dropped 40% from high to low and everyone felt it was probably going down even further. Then quantitative easing kicked in, the selling stopped and stocks rocketed higher. No one raised a white flag and said the coast is clear. You just had to either be in stocks or you got quickly left behind.
That's why it is so hard for bears to get back into the market to realize the upside. They feed on the fear that drives their ego and allows them to thrive when stocks are falling. They are finally on the right side of the trade and no one is going to take that satisfaction away from them -- until the buyers step in.
I have only heard of a few rare exceptions of investors that have successfully navigated both bull and bear markets in order to capture profits in both directions.
3. They Have a Lot More Conviction Than Discipline
Most bears are unable to cope with the concept that price is the ultimate arbiter of reality. They feel that any gains in stocks are unrealized and that ultimately those who are long are going to pay the price.
However, if they aren't going to capture any of the gains on the upside, what makes you think they are going to call the top and get short in the sweet spot on the downside?
In my experience, bears are battling the market when it's rising and they are late to the party when it's falling. They lack the discipline to be steady traders because of their one-sided bias. Often times they override any risk management discipline because they feel that they know more than the market. That combination of conviction over discipline can be very dangerous to your wealth.
The Bottom Line
In my experience as a professional investor, I have come across many bears who are better marketers than they are long-term investors. Fear is a powerful motivator and they know how to push all the right buttons.
There are many people that make a great living by trading stocks on the long side and short side of the market. I am not trying to discount the notion that you can't make money when stocks are falling. However, you have to have the time, tools and discipline in order to be able to successfully implement trading strategies that work when stocks are falling.
Most traders would also tell you they trade smaller and tighter when they are short versus when they are long. That is because they know that at the end of the day they are fighting the natural inclination of the market which can quickly bite them if they are not careful.
As an active portfolio manager, my preferred method of dealing with market volatility is through the use of stop losses and tactical asset allocation strategies to defend my client's capital. I don't try to call tops or have a strong conviction about the direction of the market. I simply follow my trading discipline and watch trends develop. It's not a perfect system and I have made my share of mistakes, but I am able to see both sides of the market and adapt when changes are necessary.
By staying balanced with my portfolio, I find that I am able to sleep better at night knowing that I am prepared for a number of outcomes. Markets aren't always logical, but they offer us numerous opportunities for rewards if you are committed to a successful outcome.
At the time of publication the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.