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A Look Into Bear Market Psychology: A Warren Buffett Approach

“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” - Warren Buffett

Despite some positive momentum, the cryptocurrency market is still suffering. The cryptocurrency bear market has caused continuous panic, fear, and uncertainty amongst investors; but awareness of common behavioral investment biases can help individuals navigate market turmoil and avoid making behavioral mistakes to the individual’s financial detriment.

Behavioral Finance is the study of the influence of psychology on the behavior of individuals, including investors and analysts, and it examines the neurological process of decision making pertaining to the ambiguity of financial issues. Behavioral finance also attempts to understand how the collective decisions of individuals affect the performance of the markets.

Embedded in the human DNA through evolution, is the behavior of making decisions quickly via heuristics and emotions, in a process known as Systems 1 Thinking. According to AthenaInvest, the individual typically makes 95% of decisions using a Systems 1 Thinking process, while the other 5% of decision making is fabricated via a Systems 2 Thinking process, which requires the conscious effort of logical thinking and analytical methods. However, by using the Systems 1 Thinking process and in making these decisions quickly, the individual often compromises the accuracy of those decisions. These inaccuracies in decision making arise in human behavior as biases.


The following is a list of common investment or financial biases displayed by the individual:

The Impact of Financial Biases

Many financial and investment biases are deeply ingrained in the individual’s subconscious mind and have, consequently, plagued a majority of individual investors, causing many investors to make decisions in a manner inconsistent with their best interests. A majority of investors exhibit these biases, including the ones mentioned above, and they are exhibited in the behavior of assets, sectors, and the overall market; the market reflects the sum of all biases and behaviors in gross. However, if the individual investor is able to identify these common biases and stray from conventional human behavior, he or she may be able to improve his or her investment strategy and success.

Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ ... Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” — Warren Buffett

Bear Markets are the Greatest Behavioral Test

The lingering effects from the COVID-19 pandemic, high inflation, and other factors have caused a digital asset bear market; but, investors entering or in the midst of a bear market who have recognized prevailing financial biases may come out on top. In a bear market, when investors identify biases and keep mental biases and self-destructive behavior under control, the smart long-term decisions often may look foolish in the short term; however, these decisions, most often, are victorious, and Mr. Warren Buffett would agree.

Look at market fluctuations as your friend rather than your enemy; profit from following rather than participating in it.”- Warren Buffett

Buffett’s Approach to Bear Markets

Mr. Warren Buffett exemplifies the contrarian approach to investing during the bear market by relying on logic and historical market cycle data to realize gains. Mr. Buffett has predicted that bear markets may be followed by bull markets and record profits, based on historical data. His view on investing takes a long-term view and favors investors who take advantage of bear market discounts and investment opportunities. In a 1997 letter to his shareholders, Mr. Buffett said “So smile when you read a headline that says, “Investors lose as the market falls.” Edit it in your mind to “Disinvestors lose as market falls — but investors gain.” Mr. Buffett’s advice is clear that it is essential to stay invested and not give in to the biases and fear factors that materialize during economic downturns; while short-term volatility and downturn may be distressing, investors must not diverge from long-term investment strategies and plans. Mr. Buffett puts forth the following strategies:

  1. Keep a long-term outlook
  2. Think independently
  3. Have self-confidence
  4. Accept if you don’t know something
  5. Have patience
Price is what you pay. Value is what you get.”- Warren Buffett


Bear markets and economic downturns can be very intimidating, frightening, and alarming times for investors; but, it is essential for investors to consider the biases that emerge during these times and the opportunities that may be presented. Billionaire investor Warren Buffett is not deterred from investing during bear markets and focuses on the quality of the underlying business and long-term opportunities. Investors, by identifying common financial biases and following in Buffett’s footsteps can learn a lot from his strategy and approach to investing during economic turmoil.

We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” - Warren Buffett


This research is for informational use only. This is not investment advice. Other than disclosures relating to Alpha Sigma Capital this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates, and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate.

Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The price of crypto assets may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

The information on which the analysis is based has been obtained from sources believed to be reliable such as, for example, the company’s financial statements filed with a regulator, company website, company white paper, pitchbook and any other sources. While Alpha Sigma Capital has obtained data, statistics and information from sources it believes to be reliable, Alpha Sigma Capital does not perform an audit or seek independent verification of any of the data, statis- tics, and information it receives.

Unless otherwise provided in a separate agreement, Alpha Sigma Capital does not represent that the report contents meet all of the presentation and/or disclosure standards applicable in the jurisdiction the recipient is located. Alpha Sigma Capital and their officers, directors and employees shall not be responsible or liable for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions within the report.

Crypto and/or digital currencies involve substantial risk, are speculative in nature and may not perform as expected. Many digital currency platforms are not subject to regulatory supervision, unlike regulated exchanges. Some platforms may commingle customer assets in shared accounts and provide inadequate custody, which may affect whether or how investors can withdraw their currency and/or subject them to money laundering. Digital currencies may be vulnerable to hacks and cyber fraud as well as significant volatility and price swings.


Jordana Cohen,


Alpha Sigma Capital

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Daniel Siciliano

F. Daniel Siciliano is an Independent Director of the Federal Home Loan Bank of San Francisco and Chair of the American Immigration Council. He is the former faculty director of the Rock Center for Corporate Governance at Stanford University and former Professor of the Practice and Associate Dean at Stanford Law School. His work has included expert testimony in front of both the U.S. Senate and the House of Representatives and for 2009, 2010, and 2011, alongside leading academics and business leaders such as Ben Bernanke, Paul Krugman, and Carl Icahn, Professor Siciliano was named to the “Directorship 100” – a list of the most influential people in corporate governance.

Siciliano was also co-founder, CEO and ultimately Executive Chairman of LawLogix Group, Inc. – a global software technology company named 9 consecutive times to the Inc. 500/5000, several times ranked as one of the Top 100 fastest-growing private software companies in the US and named to the US Hispanic Business 500 (largest) and Hispanic Business 100 (fastest growing) lists for 2010 and 2011. In 2012 he sold a majority stake of the company to PNC Riverarch Capital, continued as Executive Chairman, and led the sale of the company to Hyland Software/Thoma Bravo in 2015.

Siciliano is a co-founder and board member of the Silicon Valley Directors’ Exchange (SVDX), Chairman of the national non-partisan American Immigration Council, past-President of the League of United Latin American Citizens (LULAC) Council #1057, and an active member of the Latino Corporate Directors’ Association.

Siciliano’s related areas of expertise include executive compensation, corporate compliance, the legal and social impact of autonomous (AI/robotic) systems, and corporate technology strategy and security. He has served as a governance consultant and trainer to the Board of Directors of dozens of Fortune 1000 companies (including Google, Microsoft, Fedex, Disney, Entergy and Applied Materials), is an angel investor and consultant to several firms and companies in Silicon Valley, Hong Kong, India, and Latin America, and currently serves as an independent director on the board of the Federal Home Loan Bank of San Francisco. He lives in Los Altos, California.