My Simple Rules for Making Money in a Bear Market

What’s old is new again. 

The saying certainly holds for fashion. When I see the hairstyles and clothes the kiddos are sporting today, I’m taken back to the 1970s (which I remember).

What holds for fashion holds for stock investing.

A few “old-time” companies have been standout performers over the past month. They’ve become fashionable with investors. I suppose we could say that they’re new again. 

I offer the following five old-time favorites of mine as examples. 

  • CSX Corp. (NYSE: CSX) – railroads, up 18.9%
  • PVH Corp. (NYSE: PVH) – apparel manufacturing, up 21.1%
  • Copart Inc. (NASDAQ: CPRT) – automobile recycling, up 15.1%
  • Amazon (NASDAQ: AMZN) – e-commerce, up 28.6%
  • Starbucks Corp. (NASDAQ: SBUX) – restaurants, up 11.5%

They’re not the only ones, of course.

Many stocks – including new ones with a short history – have advanced over the past month. A few of the newbies have advanced at an even greater percentage rate than the five I highlight. 

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That said, I’ll stick with my five. Here’s why. 

Experience guides the way, and I have a lot of it. I have been investing for 35 years. I have learned a few things over those three-plus decades.

Here’s one important thing I’ve learned.

If a company has done it once, odds are good that it will do it again.

Call it Mauzy’s law, if you will.

I like to see that a company has recovered from a previous bear market. A recovery isn’t enough, though. I want to see that the share price continued to rise and hit new highs in the bull market that followed.

All five of the stocks highlighted have done just that. (For the record, I don’t consider the bear market of 2020 a real bear market.)

I like companies with a bit of girth – a market cap of at least $5 billion. Size matters when sentiment turns negative. Size adds a layer of protection. 

A company that continues to record earnings during a bear market increases its odds of a survive-and-thrive recovery.

Earnings today also eliminate the money-losing “hype” stocks that emerge in the latter days of a bull market. Companies trading at P/E multiples near historical lows further pique my interest. 

Timing is important to fashion. It’s important to investing. 

To increase the odds of a timely purchase I like to see a share price 30% or more below the 52-week high. A precedent guides me. Stocks that became fashionable again in the subsequent bull endured an average loss of 32.5% in the preceding bear market.

I am hopelessly unfashionable when it comes to fashion. I’m considerably more fashionable when it comes to investing.

The few simple rules I offer have helped me to game the investing fashions of tomorrow.

Good Investing,

Stephen Mauzy
Contributing Editor

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