The statement “Don’t fear the bear market” has a similar feel to Blue Öyster Cult’s 1976 hit “(Don’t Fear) The Reaper” – why the heck wouldn’t we fear the reaper or the bear market?
Bear markets, like the Grim Reaper, are not known for boding well; they are often thought to be harbingers of worst things to come… and you’d be out of your mind not to fear them – even a little bit.
But I disagree.
In fact, at the risk of you exiting out of this email and shutting your laptop or tossing your smartphone across the room, I believe that bear markets are a good thing.
Bear markets are a bit like volcanic eruptions; the initial thought one has about both is a picture of chaos and destruction. But the soil around volcanoes is considered some of the most fertile on the planet, and that’s because the ash and magma following such terror is incredibly rich in nutrients.
You get where I’m going with this.
While at their apex, bear markets elicit a feeling of panic and hopelessness, it’s what comes after that makes it all worthwhile.
And today, I have three reasons why you shouldn’t fear the proverbial lava flowing through the stock market…
Reason No. 1: Stock Up on Your Favorites During a Bear Market
Everyone loves a good sale – and a bear market brandishes a huge banner that says, WE SLASHED PRICES LEFT, RIGHT, AND SIDEWAYS!
Of course, the idea of spending money when our investment accounts take on water isn’t particularly alluring, but when solid stocks are down, it’s hard to pass up a good deal.
Just check out a few of my favorite stocks right now. Year to date…
- LM Ericsson (ERIC) is discounted 35%…
- Infinera Corp. (INFN) is discounted about 38%…
- Akamai Technologies (AKAM) is discounted about 24%…
- Sabre Corp. (SABR) is discounted about 32%…
- And Corning Inc. (GLW) is discounted 9%.
You can read my bullish case for each of these stocks in your exclusive Smart Money free report, Top Five Tech Stocks for 2022.
I could list at least a dozen more companies that have excellent revenues, strong management, good dividends, and earnings beats, but the sentiment is the same: Bear markets are the ideal time to buy the stocks you were too nervous to pull the trigger on, were too expensive just six months ago, or that you already own and want to have more of.
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Reason No. 2: Unlikely Sectors Perform Well in Bear Markets
Up until this year, the oil and energy sector was the least likely to perform.
But as I’ve mentioned here before, energy stocks are making investors money when virtually nothing else is.
Google “the best-performing stocks of 2022”, and every stock you’ll see is energy-related.
- Valero Energy Corp. (VLO) is up 40%…
- Exxon Mobil Corp. (XOM) is up about 38%…
- Halliburton Co. (HAL) is up 21%…
- Marathon Oil Corp. (MRO) is up 31%…
- And the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is up 21%.
So, if you’re a contrarian or you heeded my words about the emerging big oil megatrend back in January, you’ve likely had the opportunity to make some big bucks on stocks everyone else has ignored.
Readers of my elite trading research service, The Speculator, have had the chance to exploit this trend in full, with our six most-recent closed recommendations all being in the green – and having an average unweighted return of 263.33% and an average holding period of about 5.2 months.
But in truth, the oil megatrend is still new, and I fully believe that we are only beginning to see the money to be made on it.
That means that the stocks that are cheap now won’t remain so for long, and if you miss out on this trend while it’s still emerging… well, I’ll just say that you might be kicking yourself while everyone else is taking profits after a tough bear market.
But I get that oil can be a tricky sea to navigate; so in this brief video, I’ll give you one of my oil picks for free.
Reason No. 3: New Highs Always Come After a Bear Market
The final reason you shouldn’t fear the bear market comes from InvestorPlace CEO, Brian Hunt.
Earlier this spring, Brian published a two-part article called “What to Do When the Stock Market Drops” (which you can view here and here).
In that article, he catalogs a few examples of bear markets that devastated investors… but went on to make new highs not long after.
Since 1928, there have been 26 bear markets in the benchmark S&P 500 stock index. After each and every one of them, stocks went on to reach all-time highs. The track record here is perfect.
Recent history has eight outstanding examples of why a smart “bear market strategy” consists of keeping the facts in mind, thinking long term, and not getting scared out of stocks…
… during the famed 1987 “Black Monday” crash, the stock market dropped 33.5% in a single day. It caused a short-term global financial panic.
However, less than two years later, the stock market reached an all-time high…
Then you have the 2000-2002 bear market. This crash came after the dot.com reached its frenzied peak in March 2000. Although this was one of the worst market downturns in U.S. history, stocks went on to recover and reach new all-time highs in 2007…
Then there is the COVID-19 related stock market drop and recovery of 2020. When the world realized COVID-19 was a serious worldwide problem, the market fell 53% in less than two months. However, government stimulus helped the market recover and stocks reached a new all-time high by the end of the year.
If past is prologue, then even this bear market, as gut-wrenching as it may be, will let up.
Stocks will recover. Money lost can be remade. A trusty bottle of Tums, if you need it, currently retails for about $7.75.
Just keep these reasons to not fear a bear market close – and when that “volcanic ash” seeps into the “soil” of the market, we’ll be ready to profit.
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On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.