I learned a lot of lessons investing during the global financial crisis bear market of 2008 to 2009. This time around, as we increasingly look like will be entering a bear market brought about by the coronavirus pandemic, there are a number of past mistakes that I previously made which I am acutely aware of and watching out for to ensure that I don't repeat them this time round.

Don't sell your winners too early

One of the biggest mistakes that I made back in 2008 was selling really strong, secular growing business far too early with the expectation that they would continue to indefinitely decline and that I would somehow be alert and savvy enough to pick the bottom and then get back in. I exited really strong businesses like Mastercard (NYSE:MA) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) early on in the massive declines and unfortunately was never able to pick the right time to re-enter. While I initially felt good that I managed to conserve some capital and avoid the worst of the declines, I watched with some level of dismay as the tide eventually turned and the stocks rocketed upwards.

I kept thinking that the prices of some of the stocks I sold would eventually come back down to a point where I could buy back at similar prices, but that didn't happen, and I then eventually bought back in a number of years later at prices that were significantly higher than what I sold for. When I look at the same business in 2020, I still see the same secular growth drivers that were present just a few months for these same businesses that have started getting whacked by the fear that's present due to the coronavirus pandemic.

Merchants and consumers will still use their Mastercard to continue to accept or make purchases either in store or online. It's just as hard for competitors to challenge Mastercard today as it was in late 2019. Alphabet continues to benefit from the shift in eyeballs going to digital mediums and advertisers' interest to be where those eyeballs are. The effect of a temporary pandemic which whacks the stock price of these businesses down in the near term doesn't change the long-term trends that are in place. I won't be selling out these great businesses too early a second time around, even if their share prices are in massive decline.

If you invest during difficult times, do so with high conviction

It's times like these when stock prices are moving all around that it becomes very easy to question if you're holding the right investments. When stocks are trending down over 15% each day, there is a tendency to wonder whether you have the right holdings and if the market knows that there's something sinister going on with these businesses that you don't. Alteryx (NYSE:AYX) is one such holding of mine that fell almost 17% on "Black Monday" during the broader market panic.

However, this is a business that I'm happy to hold long term because I understand that Alteryx plays a pivotal role in improving the productivity of data scientists who are trying to make sense of the data tsunami that is about to engulf corporate America. Thus, even the massive falls that the stock price has seen in the last few days don't concern me at all.

In the past, I've been guilty of investing in businesses that I didn't have quite the same level of conviction in. When Chipotle (NYSE:CMG) was going through its own food poisoning crisis several years ago, I had real concerns about whether the brand could survive the scandal and whether consumers would come back into its stores. Thus, because of this uncertainty and lack of conviction, when the share price continued to get pummeled day after day and turnaround looked slow, I ended up selling the business.

A similar case was true with my holding in Illumina (NASDAQ:ILMN). Several years ago, Illumina's revenue growth declined during a company transition from selling sequencers into the research market and a subsequent pivot into selling to the broader commercial market. This revenue slowdown proved to be temporary. However, I didn't have the insight and the sufficient conviction in the holding to know what was happening. This was also another investment that was promptly sold once times got tough and share price was declining. Needless to say, in both the case of Chipotle and Illumina, share prices are now well up on where I had previously sold them.

Resisting the urge to needlessly 'diworsify'

In 2008, when times were most difficult, I made the mistake of randomly diversifying into stocks that I thought would provide shelter and went into many perceived 'safety stocks'. These were the strong dividend paying low volatility consumers staples and telecoms that provide some measure of share price stability when things are very rocky including Verizon (NYSE:VZ), Procter & Gamble (NYSE:PG), and Colgate (NYSE:CL).

While I was happy to make those moves at the time in the spirit of trying to find some shelter from the storm, what I observed once the worst of the crisis was over was that the stocks that made the strongest of gains were in fact the secular, high growth business like Mastercard, Visa (NYSE:V), and Google. I have no reason to doubt that this won't be the same again this time around.

I'm also not even sure that the defensive, low volatility stocks provide the measure of safety that they did in the past. Consumer staples have all been bid up to extraordinarily high levels, such that a business like Procter & Gamble or Colgate, which have had minimal revenue growth for the last three or four years, are all trading at 25x earnings.

Further, these businesses are under some structural attack, as brand advantage is increasingly eroded, and the traditional tactics that worked in the past of mass television campaigns and paying retailers large sums to secure premium shelf space have less certain value in an era where linear television usage is on the decline, and consumers are increasingly preferring online methods to make purchases.

Of course, these types of low volatility businesses can make sense in different portfolios depending on one's own objectives. In my case, they don't fit my objectives given my search for capital growth, and hence, I don't plan to change my strategy given volatility in the market. Rather than looking to suddenly move to safe havens or low volatility stocks, I am planning to weather the storm and even add to the same high growth, secular names that I own through the bear market to the extent possible.

Don't get overzealous and avoid margin lending

As a younger and less experienced investor during the last bear market, I made the fatal mistake of thinking that bargains abounded during the crash and levering up to take advantage of those. Unfortunately, I ignored the age-old Wall Street adage that the market can stay irrational longer than you can stay solvent. My levered money went into many of the US banks with toxic balance sheets such as Bank of America (BAC) and Citi (NYSE:C), whose share prices cratered and were in freefall through 2008 and 2009. This time around, while I am sure the markets will throw up their share of bargains, I don't plan on taking significant leverage to take advantage of those. Precisely because markets can have a tendency to more meaningfully overcorrect before any kind of sanity returns. This is particularly true, given the high levels of leverage and momentum trading that are in place, given the 11-year bull market that we've enjoyed.

Not giving up my 'long-term market outlook' advantage

During these kinds of wild panics, when you have major indices like the Dow and the S&P 500 (NYSEARCA:SPY) declining more than 7% in a day, it's very easy to lose sight of one of the biggest advantages that you have as an individual investor, which is a long-term time horizon. The rush to get to the exits to preserve capital is a great way to neutralize this advantage as professional investors seek to lock in whatever profits they have and minimize the losses to short-term returns.

What I forgot last time around is that I don't have to take any action. I don't have to beat out all the other sellers who are racing to hit the exit button because I don't need to show short-term profits or preserve short-term capital. My yardstick isn't what happens in the next week or the next month. My measurement is the capital that I'll accumulate for my retirement in 20 to 30 years.

I forgot in 2008 that taking no action is perfectly acceptable. Time and history have proven over and over again that high quality company earnings eventually rise, and with that, so do stock prices and the markets as a whole. I'll be trying to press my long-term advantage by taking advantage of some of these drops. However, even if I don't, at a minimum, I won't be giving up on my long-term market advantage, by selling out on high-quality businesses that still have decades of growth ahead.

https://seekingalpha.com/article/4331038-5-mistakes-i-wont-be-making-in-coronavirus-bear-market