Is it possible to make money during a bear market?
A market crash may be scary for some, but it's actually a great time to invest for those who are prepared. Discover the opportunities available to you and how, with the right approach, you can still make money in a bear market.
by Aline Barbosa
Market crashes present opportunities for long-term investors. See what they are.
No one can know for sure when a stock has hit bottom. Many can speculate, but no person knows when a particular stock or even the market has fallen as low as it can possibly go. Bear market, market crashes, down markets – they don’t have a set of rules you can follow. While from an investor’s point of view it is tempting to wait for better prices, the waiting game is a dangerous one to play. That is because you might be rewarded for waiting, but there’s a big chance you’ll miss out on an opportunity for waiting too long.
Market corrections are common in the business, and they take companies that have under-delivered down in value. But what they also do, is to drag down shares of stronger companies which have been performing well. As a long-term investor, the best way to accumulate wealth isn’t trying to figure out when or where the bottom is. The goal is to sort out the companies with a bright future from companies that don’t have solid business fundamentals.
That might sound easier in theory than it is in practice. For example, do big retail companies like Walmart, Target and Costco have a long-term supply problem or will they solve this issue? Or even, is Netflix a long-term leader in its segment or a company with a spending problem that it might never come to a solution?
Undoubtedly, there are many analysts who feel like all questions listed above are valid. But it’s important to remember that one of the best things about investing is that you can choose to put your money in whatever companies you have positive convictions.
What does it mean to be a long-term investor?
For starters, a long-term investor views a down market as an opportunity. That is because it means they can add more shares to their portfolios. But before you start buying left and right, you have to really think about what it means to invest long-term. Long-term investors usually buy shares of companies they believe in, and intend to hold for many years.
Normally, a long-term investor has a reason why they want to own a particular stock. That reason should be enough to give them faith in the stock even when the company they invested in experiences a drop in prices.
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How can a long-term investor get rich during a bear market?
Basically, a bear market means that good companies’ stocks are on sale. If you have a company you already own, or one that you believe in, you can buy shares and add them to your portfolio for less money. However, you’ll have to stick with those shares even if the stock prices continue to go down.
Owning a share long-term means years, and a drop in prices because of macroeconomic or market conditions allows you to purchase more shares with a dollar cost averaging. That means that instead of waiting for the best cost, you buy the shares as the funds allow. Then, you average the price you have paid to own that share in the company.
A crashing market allows investors to lower the average cost of their best shares should the price be lower than what they first paid for it. The biggest challenge when it comes to doing this is that you have to hold the shares for a very long period of time. In the present tense, it doesn’t mean good news to your portfolio. But, if you believe the companies you own will perform well again in the long-run, holding the shares and buying more when you can makes sense.
If you want to understand a bit more of how a bear market works, follow the link below. In it, we’ll tell you what the term means, how long they last and what you can do with your investments during one.
What does "Bear Market" mean for investors?
Find out what causes them, and what you can do to protect your investments!
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