The average bear market drawdown is 25%, and it takes 15 months to recover.
With hindsight, these seem like great opportunities to buy.
It certainly feels as if the world is ending when you are going through one.
What happens when you buy the dip?
Historically, as you might have predicted, you would have done exceedingly well almost every time you bought the dip.
Looking at the Nasdaq, your average returns would be 328.1% if you held out for 10 years if you bought at the beginning of the bear market.
What is Warren Buffett doing?
In the first quarter of 2022, he invested net $41 billion of his cash, or approximately 30% of his total cash position. I am certain he is thrilled with this opportunity.
Here’s why:
“We are going to be buyers of things over time. And if you’re going to be buyers of groceries over time, you like grocery prices to go down. If you’re going to be buying cars over time, you like car prices to go down.” — Warren Buffett
What if it keeps falling?
During the global financial crisis in 2008, when the market declined by 20% to 30%, Buffett bought heavily.
After taking out his war chest, it kept falling. The market continued its drop to 56.8% after he bought. He was way too early.
He was not trying to time the bottom, as he invested on the way down.
Despite missing out on the market bottom, Buffett still achieved a great set of results.
Buy in tranches
Market bottoms are impossible to predict consistently.
We have a good chance of missing the rebound entirely.
Instead of trying to time the bottom, deploy your cash over time in tranches.
Build up your shopping list
Before the market starts to decline, we should have a list of companies we would like to buy.
Once it starts, the siren sounds of pessimism would cause most investors to freeze.
Learn more about companies like Amazon, Netflix, Facebook and more in my in-depth research reports.
We cover their business model, financials, valuations, competition, risks, growth outlook, and more!
