Thursday, July 7, 2016

Holdings in a Bear Market

In a bull market most investors find wins in every shape, size, and sector. That’s just the way it goes when the economy is up and the market is running on highs. In a bear market however, the gains are far fewer and far between. At those times, it becomes increasingly harder for investors to find value and protect their equities. Some sell short, some trade options, others such as myself build a portfolio that has built in stocks that weather bear markets better than others.

There a few qualities that I look for in stocks that I feel can bolster themselves against a bear market. First off, I want to aim for stocks that have a history of weathering bear conditions. Secondly, I want to choose companies that I feel fit that mold but that also have a product that couldn’t just as easily be wiped away. We are still aiming for longevity of course. Lastly, I aim for stocks that are talked about are debated a lot on message boards.

The reason that I aim for stocks with a history of weathering bear market conditions is that nothing speaks stronger than how a company did when all the chips were down in the past. Walmart for instance has an incredible track record under bear conditions. They thrive in bad economies because there seems to be a perceived notion that Walmart is for “poor people”. It’s just the brand that they have come to accept and thrive on. Even though the outlook isn’t the truth, the fact that there is a large backing of people who believe it makes it seem so. That means that there are added chances that it will be bought into most during bear markets when others think that sales will increase during that time.

As for my second reason – that I want a product that will still last, even if sales are good through bear markets. Just because I try to buy into holdings that are made to weather bad times doesn’t mean that the product itself is inherently good. That being said, I want a stock that also looks attractive in bull markets. Johnson and Johnson is a good one for this example. The company has a product line that does very well in a bad economy and good economy. That is because their brand and product is noticeable, usable, and has a purpose that can easily be deduced by even the simplest of brains.

Finally, I like to aim for stocks that are talked about a lot of debated. The reasoning behind this is simple. I don’t want a stock that nobody sees in any other way than just one way. A one sided argument is boring for all parties involved and therefore it gets no attention. No attention means less buyers and less sellers. If there are less sellers, I see less entry points when the market dips for an opportunity to buy in. It’s simple but effective.

By employing this collection of indicators, I have found that I have made excellent selections that weather good times and bad times. Although these are hardly the only things that can be used, they set a good precedent for further evaluation. Anything that can help narrow down choices of stocks is a good thing. That being said, what are indicators that you use in your selection when looking for stocks that may weather a bear market or assist you in making money during downturns?


  1. Interesting topic, a bear market may be around the corner who really knows for sure but it's nice to be on the safe side. If you look at my portfolio you may notice that I tend to avoid companies that have large "drawdowns" especially in the 08-09 crash (stocks like CAT). That can tell you a lot about a stocks durability during a coming bear market. And while I may miss out on potential upside I believe I am at least a little safer in a bear market.

    1. You're right that this is a great technique to further bolster yourself against loses in a bear market. You're also right that it's nearly impossible to tell exactly when it will happen next. The most we can do is just be prepared for when it does hit with strategies like this.