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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.

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by Aline Barbosa

Published on 06/18/2022

Learn how to tread the current market and still make profit.

invest bear market
Learn how to invest in a bear market. Source: Adobe Stock.

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

invest bear market
See what to do and what to avoid. Source: Adobe Stock.

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.

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.

What does "Bear Market" mean for investors?

Find out what causes them, and what you can do to protect your investments!

About the author

Aline Barbosa

Aline Barbosa is an editor, writer and learning-enthusiast. Passionate about music, books and human behavior. Curious about the unknown. Believer that learning is a life-long process.

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