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HomeInvesting10 Ways to Thrive in a Bear Market and Recession

10 Ways to Thrive in a Bear Market and Recession


Things are pretty wild right now. Stocks are in a bear market and we’re pretty clearly in a recession.

As of mid-June 2022:

  • The S&P is in bear market territory, down 20.5% YTD
  • The Nasdaq is down almost 32%
  • Crypto is being decimated (Bitcoin is down more than 55%, Ethereum is off over 70%)
  • Headline inflation has been over 8% for 3 months straight, with gas prices over $5 nationally
  • GDP growth was negative in Q1 in the USA and Q2 will likely also be negative (aka, a recession)
  • Tech companies (and others) are freezing hiring and/or laying people off

A lot of people are experiencing this kind of thing for the first time in their professional lives.

Not me.

I entered the working world during the dot-com bust, lived through the housing bubble and Great Financial Crisis, and have been riding the tide of the Covid-induced money printing along with the rest of you.

I made some big mistakes during these bear markets and recessions and have learned a lot about how to manage my portfolio, but more importantly, myself, during bear markets and recessions.

Here are 10 tips organized under 3 themes to help you keep your sh*t together over the next 6-18 months.

Manage Your Psyche

You need to start with managing your mental state. You won’t get anywhere if you’re emotional or panicky.

1. Don’t Panic

The worst thing you can do is panic. If you let your caveman brain take control — that is, your fight or flight instinct — you’ll straight up make bad decisions that you’ll come to regret.

Slow down. Meditate. Go for a run or a walk. Take some deep breaths. Every day.

2. Don’t Check Your Portfolio

It’s not going to help. It’s just going to make you feel bad. You can’t do anything about it. Why are you checking? Stop!

3. Focus On Inputs, Not Outcomes

Speaking of what you can do something about: your process. This is what matters.

You can control how much exercise you get, how much you’re meditating, how well you’re eating, how much you’re drinking, how much you’re sleeping. These are all INPUTS that are totally and completely in your control.

The output? A mind and body that are ready to process information and make intelligent decisions.

You can also buy and sell out of greed or fear. Read a scary tweet? Sell all your crypto!

OR: you can remember your investing process. The one where you focus on building conviction in an investment thesis based on facts, data, and analysis. You read financial statements and understand what matters (free cash flow, growth, improving margins, etc.). You understand markets and can assess industry growth and structure, competitive moats, etc.

In short: you make rational decisions based on synthesizing all this information.

This is the time to double down on this process!

Some of your investment theses may have changed, and that’s OK. Evaluate those and take necessary action.

But if you believed yesterday, you should probably still believe today.

4. Remind Yourself: You’re Resilient

Do you think of yourself as capable, hard-working, and able to bounce back from hard things?

If so, now is the time to live that.

This is the hard time you’ve been preparing for. This is when you shine!

5. Get Out All the Bad Thoughts

Try this exercise, maybe by yourself, maybe with a business partner or friend:

What would a loser be thinking now?

Define “loser” how you want, but what’s a person that’s not going to be successful coming out of this bump in the road thinking right now? What are they doing? Then, ask yourself:
What are the winners thinking and doing now?

That’s you. You’re the winner. You’re going to come out of this ahead. What’s someone like that thinking and doing right now?

Manage Your Burn

Once you’ve got your mental state ready, there’s still some basic blocking and tackling to be done in your life.

6. Trim The Fat

What this means to you depends on your financial situation, but everyone has expenses they can cut when things are uncertain.

Are you using an app like Truebill yet? Give them a try — I found several unneeded and duplicate subscriptions when I first signed up.

Are you a manager or owner of a business? Maybe now’s the time to look at letting the lowest performers go.

Maybe you need to pause your personal chef. Or cancel your cable. You need to know where your money’s going and take steps to reduce your burn rate.

7. Switch to a Lower Cost Alternative

Another way to make a difference is to not really change your consumption, but just make it less expensive.

Drive a few blocks farther to Trader Joe’s instead of Whole Foods.

Eat at Applebee’s instead of that high-end steak house. Or just go on Tuesday during Happy Hour instead of Saturday night.

Downgrade to the 1-screen Netflix plan, update your password, and make your in-laws who are sharing your password suffer.

Does anyone want to do this stuff? No, of course not. But you can handle a few small sacrifices in order to come out ahead.

Hunt for Value

The final phase of managing through a downturn is next. It may already be here. It’s time to go bargain hunting.

8. Embrace Value Investing

Some stocks got absolutely demolished this year, but the underlying businesses are good. GREAT even.

Public market multiples have come crashing back down to earth, so now’s the time to find businesses that are trading below historical averages for Price to Free Cash Flow, Enterprise Value to Free Cash Flow, EV/EBITDA, or even Price to Earnings.

The pain may not be over yet and the markets may fall further.

But see above: focus on inputs (your investment process) and build your thesis and conviction. Don’t try to time the markets. If you find a great value with a great margin of safety, pounce. And buy more if the price keeps dropping.

DO NOT TRY TO TIME THE MARKET!!

It’s a sucker’s game. You’ll be wrong. Invest with your conviction.

Fortunately, we’ve built a stock valuation tool to help with all this!

9. Free Up Your Cash

It was hard to keep any dry powder on the sideline in the last cycle.

If you did, you probably missed out on some big gains.

But maybe you’ve got big chunks of your assets in index funds, or bonds.

Maybe it makes sense to sell out of some of your Vanguard S&P 500 index and make a bet on a few of your high conviction names that have fallen 60% or more.

Maybe you don’t want to be in bonds in a rising interest rate environment. (Prices fall when rates rise.)

Just some ideas for finding some dry powder when you don’t think you have any.

10. Wait for Discounts & Sales – They’re Coming!

I read a great thread on Twitter today about how retailers are slashing prices because of an inventory glut:

If you can delay the purchase of that new pair of shoes or that dining table — do so. You’ll (probably) be glad you did.

Conclusion

Managing through a downturn is as much about managing your own emotions as it is about taking any decisive action. Hopefully, some of these tips have been useful reminders to help get you through the combo bear market and recession.





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