Last year, the three main indices plunged into bearish territory. Some of the strongest companies in the world have seen their prices plummet. And today, the main question for investors is: when will the next bull market shake stocks out of the doldrums? No one has the answer to that.
But here is some good news. We know a bull market is on its way. That’s because market downturns don’t last forever. In fact, history shows us bull markets always follow bear markets. And the average duration of a bear market is about a year. All of this means it’s a great idea to start preparing now for better days. How should we do this? Continue reading.
A diversified portfolio
First, it’s important to note that your investment strategy doesn’t have to change dramatically when the market goes from bearish to bullish. Ideally, you should put together a diversified stock portfolio that will serve you well in the long run.
This means a mix of safe bets, like dividend stocks, with players that carry a bit more risk – and upside opportunity – like growth stocks. You can also seek security through certain healthcare players and growth through tech companies, for example.
The market will go up and down, and this type of portfolio can help you limit declines during bad times and maximize gains during good times. If you are a conservative investor, you will want to invest more in the safest stocks. If you’re an aggressive investor, you’ll favor riskier, high-growth options.
Now let’s get to the idea of preparing for the next bull market. Today’s tough market has crushed the valuations of many large companies – companies that still have bright long-term prospects. And these are the players to add to your portfolio now as they negotiate for a bargain. They could be among the first to take off once the general market improves.
Amazon and Home Depot
A good example is Amazon (AMZN 2.10%). Rising inflation has increased Amazon’s costs and hurt the purchasing power of its customers. As a result, Amazon’s earnings, stock performance and valuation declined. The stock is trading today at the lowest relative to sales since 2015.
AMZN PS Report given by Y charts.
But that of Amazon the future still looks bright thanks to its leadership in the two high-growth sectors of e-commerce and cloud computing. In fact, its cloud business continues to grow by double digits.
Another possibility is Home deposit (HIGH DEFINITION -1.09%). The current economic environment has not hurt the profits of the world’s largest home improvement retailer. The company continued to increase revenues and profits. And he still experiences strong demand from his two types of customers: DIYers and professionals. Yet the share price suffered last year.
You’ll find other similar stories in every industry, from healthcare to technology. However, it is not a good idea to buy a stock just because it is falling. It is essential to consider its long-term revenue opportunities, its leadership in its sector and its position in relation to its competitors.
The financial situation of a business
And it’s important to look at a company’s financial condition. Is the company heavily indebted? If so, how easily can he repay this debt? Are cash levels high enough to support business development and growth?
OK, so now you’re ready to add some of these great stocks to your portfolio. But what if you buy them and they decline further? After all, we don’t know the exact timing of the future bull market or rally for each stock.
Its good. It is impossible to time the market and get a stock to its low. But if you invest for at least five years, and you’ve chosen quality companies, you’re likely to win in the long run. And the next bull market could play a major role in that victory. That’s why now is the perfect time to start preparing for it.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Adria Cimino has positions at Amazon.com and Home Depot. The Motley Fool holds positions and recommends Amazon.com and Home Depot. The Motley Fool has a disclosure policy.