What Strategies Work in a Down Market?

Dr. Gerald House
3 min readNov 2, 2022

Nobody likes bear markets. However, over the last few bear markets, starting from the 1987 stock market crash, there were successful strategies that consistently stand out as gold mines for individual investors. These strategies not only survived the past bear markets, but they also flourish in bull markets. Of course, these strategies often thwart the unsuspecting investor who has not properly prepared their portfolio for all the investment seasons.

First, never underestimate the value of a well-diversified and balanced investment portfolio. Keep in mind, investing is a long-term assignment. If you are only planning on being in the stock market for 5 or fewer years, don’t bother. You will no doubt get in a position where you need the money, and the market is on the downside of the equation. A well-diversified investment portfolio does not mean a few mutual funds in various sectors that equate to your risk analysis. This method, used by many advisors today, is a weak excuse for diversification. Set your investment portfolio on a solid core foundation, backed by science, and augmented by non-correlated investments, like real estate. Additionally, rebalancing your portfolio should be an ongoing event. The Bible tells us to diversify in Ecclesiastes as the value of diligence. “Give a serving to seven, and also to eight, for you do not know what evil will be on the earth”. (Ecclesiastes 11–2 NKJV)

Second, start working on building cash flow immediately. Investing to accumulate assets will only lead to extra work later when you want to convert assets to cash flow. If you build your investment portfolio with a cash flow mindset, you will have more options for determining when your job is optional, and you no longer need to work to supply your financial needs. It only makes sense. Incorporate excellent companies that pay a reliable dividend. These dividends will offset losses in a bear market, be reinvested to increase market gains in a bull market, and supply cash later when you are most likely going to need it. Good dividend companies keep paying dividends even in a down market. Income-producing real estate is another excellent tool to build cash flow. If you invest early, your real estate can consistently produce income to either reinvest or pay down the mortgage to increase your profit and cash flow later. There are other non-correlated cash flow investments you should consider, like options trading and debt instruments, including crowdfunding and peer-to-peer networking.

Last, in a down market, do nothing! If you have a well-diversified investment portfolio custom-tailored to your individual needs, do not let fear cause you to cash out. We know the market will eventually get back to positive territory. Why would you accept the loss by cashing out and moving your money to cash or annuities? By holding your position and waiting, the only loss will be time. However, if you do not have a custom portfolio, you need to create one. A disoriented investment portfolio that lacks diversification and produces little or no cash flow will take the hardest hit in a down market.

The worse thing to do during market turmoil and volatility is to think you can time the market. Market timing has never worked, not by individual investors and not by professional money managers. Trying to time the market by getting out before a downturn and back in when the market is on the upswing always results in failure. You lose when you get out of the market too late, and you lose when you get back in the market too late to take advantage of the upside.

Your faithful servant

References

The Holy Bible: NKJV New King James Version. (2016). Nashville, Tennessee: Holman Bible.

The information and opinions expressed above is the author’s and should only be used for educational purposes. None of the information above should be misconstrued as an offer to sell securities or a solicitation of an offer to buy securities. Please seek competent legal, accounting, and financial advice for your own personal situation.

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