Creating Wealth On The Way Down The Stock Market

Creating Wealth On The Way Down The Stock Market

With the S&P 500 down 22% and the NASDAQ down 30% this year, stock investors have had it rough for the last 10 months. As investors sell off the growth stocks they snapped up during the boom, the tech sector has been severely damaged, and the economy is in a period of correction from the years of fiscal stimulus that pushed the stock market to record highs. In short, “the fun times are over,” contends an article in Forbes.

But bear markets like this aren’t a rare occurrence; they generally happen twice every decade, and investors must be prepared for the stock market to occasionally decline. The recent “pump and dump” was a unique, worldwide phenomenon caused by the pandemic, and it could take years to unwind; after all, the U.S. stock market didn’t completely recover from the 2008 financial crisis until well into 2013. Though it’s easy to get caught up in the “doom and gloom” as reported in the media, buying shares when they “are thoroughly depressed and…when other people are selling” is the best thing to do in a bear market, the article advises, citing John Templeton. In order to position yourself well in the market, look for good quality businesses and invest in them without worrying what the market is doing. Start small, be selective, and prepare yourself to hold during the volatility instead of trying to play the market, which usually doesn’t work.

Forbes offers 3 pieces of advice to increase future wealth, on the assumption that the economy will take some time to rebound. The first is to set clear goals before making any investing decisions. Usually those goals involve a retirement plan, and you shouldn’t ever invest more than you’re prepared to lose. The next step would be to invest in a high-quality index. Known as dollar cost averaging, this approach involves setting a dollar amount to invest on a regular basis and sticking to it. This strategy will create discipline and increase efficiency—as well as reduce stress over what the market is doing in the short-term. Play the long-term game, and returns will come. Lastly, look for companies that have a “catalyst event” that could potentially shift the share price to value. Opportunities tend to abound in places where other investors aren’t looking. Possible “catalyst events” could include spinoffs, split-offs, management changes, restructurings, companies just coming out of bankruptcy, and deeply discounted rights offerings. If you do your research carefully, investing in a company that’s just endured a catalyst event could set you up for a significant return. Invest in companies “when they’re on sale” or showing “price anomalies in the confusion over an event,” Forbes advises, and “your future will thank you.”


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