How To Survive a Bear Market

Since the 1920s, market downturns have rarely lasted longer than a few years before rebounding and gaining value. Even during longer periods of economic stagnation, markets have historically always recovered within 20 years.

Keep in mind that such a long period of decline is extremely rare. Even when it happens, the market makes up for lost time during the recovery period.

It isn’t optimistic to think of the stock market as an investment environment that always moves upward. It’s the plain truth.

Get Greedy and Buy on the Dip

Of course, that doesn’t mean you shouldn’t pay attention to stock movements. After all, some companies will not survive the downturn. Even large corporations can fail. Just look at the list of publicly traded corporations that went bankrupt over the last couple of decades. It includes giants like General Motors, Pacific Electric and Gas, Washington Mutual, and Lehman Brothers.

You already know that investing involves some risk. As the saying goes, “No risk, no reward.” That doesn’t mean you should stop investing during a bear market. You should do the opposite.

Investors need to research their opportunities and reach informed decisions that help them avoid companies that don’t have bright futures. That research will also reveal plenty of undervalued corporations. Buying shares of these companies essentially means that you get them at discounted prices.

Amazon.com Inc. (AMZN) offers a good example of how you can benefit from buying on the dip.

On December 28, 2022, you could buy a share of Amazon for a little under $82. On February 2, 2023, the stock nearly reached $113. Strategically buying and selling the stock could have earned you about $31 per share. If you had bought 100 shares, you would have made approximately $3,100. 

Some people will take this approach to making money during a bear market. If you want to follow Buffett’s lead, you will use a different strategy.

Buy and Hold for Long-Term Rewards

The bear market will continue for an unknown amount of time. Buying and selling shares quickly can generate small amounts of money, but that doesn’t benefit you much over the long haul. Instead, buy undervalued stocks and hold them.

Let’s stick with Amazon as an example. On July 9, 2021, Amazon stock reached its highest price, just shy of $186. The price bounced between $180 and $160 for nearly a year before plummeting in April 2022.

Does Amazon seem less valuable today than in 2021?

The company’s net income fell between 2021 and 2022, but Amazon still has plenty of growth opportunities.

In fact, Amazon continues to grow in some areas. It currently dominates the market for cloud infrastructure, a side of the company many investors forget about.

AWS (Amazon Web Service) owns about a third of the world’s cloud infrastructure. Its closest competitor, Microsoft Azure, owns about 21% of the market. There’s a mighty gap between Amazon and Microsoft, and Amazon will capitalize on this opportunity as more people and companies shift to cloud-based services.

There’s a good chance that Amazon will reclaim its lost value. If it manages to recover enough to reach $186, a share you bought on December 28, 2022 would have more than doubled in value.

If you feel confident that the stock market undervalues a company with long-term growth opportunities, it makes sense to buy as many shares as you can on the dip and hold them for as long as possible. That’s the approach that helped make Buffett a billionaire.

Buy Like Buffett

Not sure which companies have the potential to recover significantly over the next few years? It’s a difficult decision. Realistically, you can only do so much research.

You can also copy Warren Buffett’s list of investments and trust his team knows how to evaluate companies effectively.

The good news is that you can access Berkshire Hathaway’s list of investments to see what Buffett’s team is doing. Currently, the company’s biggest investments include Apple (APPL) and Bank of America Corp (BAC).

More than 41% of Berkshire Hathaway’s portfolio consists of Apple. The company owns over 915 million shares. If Buffett feels that confident in Apple, it’s worth thinking about why and whether you have exposure to this tech titan too.

Bank of America accounts for nearly 11% of Berkshire Hathaway’s portfolio. Berkshire Hathaway owns more than 1 billion shares in BAC. With shares selling for about $35, practically anyone can buy shares in this well-known financial institution.

A Bull Market Is Coming

The stock market will continue this roller-coaster ride for the near future. The bear market could even last a year or more. Unless you need to sell a significant number of shares during that time, you don’t need to worry too much about your portfolio. Just keep investing in high-quality companies that will become more valuable over time.

The economy might seem a bit bleak right now, but a bull market is coming. No one knows when, but it will. It always does. If you buy shares at discounted prices now, you position yourself to prosper significantly when the market recovers.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.