Tips on how to invest in a bear market
Investing during a market downturn might sound dangerous, but it actually can provide some significant earnings in the long-run. Learn a couple of useful tips to make your money work for you even during these times of economic uncertainty.
Learn how to tread the current market and still make profit.
By now, it’s no news that the stock market has had a rough year. But now, with the S&P dropping more than 20% YTD (year-to-date), they have officially entered a bear market. This may be the cause of anxiety for most investors. However, financial experts say that if you know how to invest during a bear market, you can really benefit in the long run.
It’s important to note that the current market conditions were mostly driven by economic downturns. Such as the surge in energy and food prices, increasing inflation and supply chain issues. Sectors like communications, tech and consumer cyclical have all dropped more than 30% in 2022.
However, the massive sell-off has also enclosed the broader market. That includes companies with enough cash flow on and high-quality balances to make it through an extensive downturn. So, how can investors navigate through these troubled waters? It is possible to invest in a bear market and still gain profit. The answer as to how is more simple than you’d imagine: be selective and look for stocks from companies in strong positions in order to weather the storm.
How to avoid the falling knife
Analysts believe that right now, the market is overselling stocks. That means more volatility ahead, with little to no predictions about the future of broader markets. The Chief Market Strategist at Morningstar, Dave Sekera, shared his perspective on how people can invest in a bear market.
You will be redirected to another website
Invest in companies with an economic trench
Sekera believes that markets are waiting for clarity on a few different elements. The main factor right now is inflation and when it will start to go down in order to signal stabilization in the economy. Therefore, to invest in today’s bear market, investors need to focus on companies who provide some sort of economic barrier. He says that these are the companies with the best ability to overcome any kind economic downturns. They are also the companies that provide the best pricings.
Nevertheless, investing in a company with a well founded economic trench with a reduced stock price is no guarantee of success by itself. Since there is no guarantee the company won’t go through further losses, it’s essential for investors to add a different metric.
Invest in companies that trade at a notable margin of safety
Sekera recommends investors to pay attention to stocks that have wide or narrow economic trenches. But just the ones that have sold off and are trading at a notable margin of safety from their inherent valuation. The main goal should be to minimize the risk of additional losses in the future and provide enough confidence to investors. Meaning that if those stocks sell off further, they’ll go in and buy more shares while they’re cheaper instead of ditching the stock.
There are a few known companies investors can bet on to invest in a bear market that provide that economic trench, like Zoetis (ZTS), Nvidia (NVDA) and Boston Scientific (BSX). Despite the economic climate, there are a few companies that can prosper and pay dividends in almost any market condition. Solid economic trenches, strong cash flow and attractive prices make these alternatives a sound long-term investment.
If you’re not sure what a bear market is but would like to invest during this time, we’ll help you. Follow the link below to learn exactly what the term means and how you can protect your funds.
Applying for the H&R Block Emerald Prepaid Mastercard®: learn how!
The H&R Block Emerald Prepaid Mastercard® might be what you're looking for if you don't have a good credit score. Learn how to apply today!Keep Reading
Applying for the Applied Bank® Secured Visa® Gold Preferred® credit card: learn how!
Learn how to apply for the Applied Bank® Secured Visa® Gold Preferred® card and start rebuilding your credit score today!Keep Reading
Apply for Ovation Credit Repair: Easily improve your score!
Learning how to apply for Ovation Credit Repair helps you safely improve your score. So, read on to find out how to apply!Keep Reading
You may also like
Applying for the Merrick Bank Double Your Line Secured Visa credit card: learn how!
The Merrick Bank Double Your Line Secured Visa credit card is an excellent choice if you need to improve credit and double your limit quickly.Keep Reading
Avant Personal Loan review: is it worth it?
Read our comprehensive Avant Personal Loan review and determine whether this lender is worth it! Borrow up to $35K fast!Keep Reading
The current state of the stock market: is the US in a bear market?
The great world economic crisis is raising a question: is the US in a bear market? We have separated some information that will answer.Keep Reading