The Surprising Reason You Shouldn't Try to Get Rich Quick in a Bear Market

The Surprising Reason You Shouldn’t Try to Get Rich Quick in a Bear Market

The Nasdaq stock sell-off presents a great time to lean into lower prices for the long haul.

Investing in the stock market is all about delayed gratification. Instead of spending money, a person can acquire stakes in companies in the hopes that the majority of those companies grow to become more valuable in the future than they are today. The objective is very simple. But people get it wrong all the time. Especially during a bear market.

During a bear market , falling asset prices can lead to some great deals. But when the broader indices are down 15% to 30% and continue sliding, it’s going to be very hard not to lose money in the short term. While we all wish we could snag a stock at the exact time it bottoms, the reality is that this is incredibly hard to do. And you should ignore anyone who claims it’s easy.

Rather, the goal during a bear market should be to put money to work by building positions in companies you believe in — even if those positions go down in the short term. Here’s a look at the dangers of trying too hard to make money in a bear market, and a better approach you can take to get wealthy over the long run. Image source: Getty Images. The pitfalls of trying to make fast money in a bear market

Believe it or not, trying to make money in a bear market is usually one of the best ways to lose money. Trading in and out of stocks, shorting stocks, employing hedging strategies, and buying into sectors or companies you don’t understand are all examples of what some folks try to do in a bear market. There’s no denying that shorting the S&P 500 would have been a great trade so far in 2022. That’s simply a fact. But is it a great investment or use of capital? Probably not.

No one knows how much further the market could fall. But we do know that betting against the U.S. economy has been a losing strategy over the long run. By shorting the S&P 500, or let’s say, selling all your stocks and investing solely in gold and oil and gas stocks, you’re effectively betting that the long-term return of the overall stock market is going to be worse than gold and oil and gas. It could happen. But it’s unlikely.

Now, that doesn’t mean an investor shouldn’t own some gold or oil and gas stocks. In fact, there are a few oil and gas stocks like Chevron or ConocoPhillips in particular that stand out as good buys now . Or even a utility like NextEra Energy ( NEE 0.63%) that is tied to oil and gas and renewable energy. Rather, the point is that it’s usually a mistake to scramble to find what is working in a particular bear market and then shift your investing strategy according to that trend.

It’s worth mentioning that the same is true in a bull market, too. Investors who switched out of value stocks and oil and gas into growth and renewable energy in 2020 and 2021 missed out on the gains in value stocks and the energy sector this year. By switching into growth stocks at their peak, an investor would have missed out on the largely uninterrupted gains that growth stocks enjoyed from 2009 to 2021 and instead just gotten the losses in 2022. Similarly, the worst three sectors of the stock market in 2020 — which were energy, financials, and real estate — ended up being the best three sectors in 2021 . This is all to say that gravitating toward the slickest strategy or the shiniest stock is usually a great way to lose money. Rather, an investor should find businesses with attractive financials and long-term growth prospects and invest in those companies no matter if they are in favor or out of favor in a particular year . The more profitable approach

The best and simplest strategy in a bear market is to find name-brand companies that you understand and are interested in owning over the long term and invest in those companies even if it means more downside. While it may be tempting to go and find a downtrodden company down big off its high that could go up five- or tenfold over the next few years, the far easier strategy is to simply stick with industry-leading companies that are down big off their highs but also have plenty of […]

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