The “Good/Better/Best” Bear-Market Investing Plan

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Keith Kaplan (Q): It’s a tough time to be an investor, Mike. Just look at the backdrop. You’ve got a sell-off that took the bellwether indexes into bear-market territory. You’ve got inflation, a hawkish Fed, continued supply chain issues, spiraling recession fears, the mess in Ukraine… I could keep going.

Mike Burnick (A): I agree. It’s almost a kind of sensory overload.

KK (Q): I like that, Mike. It really captures what’s going on.

The fact is that this “sensory overload” is really another way of saying “uncertainty.” And we both know that uncertainty is an absolute killer when it comes to investing. Uncertainty leads to indecisiveness — or emotion-driven missteps.

So, let’s try to remove some of that uncertainty and give our audience here a bit more clarity. Let’s see if we can help them make sense of it all.

In your view — out of all those “worry points” — which are the ones that investors really need to focus on? And why, in your view, are those the key ones?

MB (A): That’s a great question, Keith.

No way around it: You have to be willing to play the hand the market is dealing you “in the now.” For instance, rising inflation and higher interest rates are two of the biggest stumbling blocks for the markets this year. You can’t fight that. But you can turn those to your advantage. That means you have to zero in on “inflation-proof” stocks that won’t be hurt by higher rates and inflation — or that, even better, actually benefit from these powerful factors.

KK (Q): And they’re out there? Investors can find them?

MB (A): Oh, absolutely. Just look at resource stocks, like energy producers, and any quality stock with low debt and strong pricing power.

Now more than ever, you need a strategy that allows you to access low-cost, lower-risk, and high-return investment alternatives over plain old stocks and bonds.

KK (Q): Let’s up the ante a bit more here. For investors to know what to focus on and why to do so is helpful. But let me challenge you a bit. Do a little bit of forecasting; dip into your expertise and give us a picture of what you think comes next — through the rest of the summer, the end of the year, and maybe over the next 12 to 24 months.

MB (A): [Laughing] Well, I think most folks have cloudy crystal balls at this point. It’s like that great old Magic 8-Ball response: “Reply hazy, try again later.”

Really, though, as I look at the backdrop we’ve just been talking about — and looking at what’s still to come — I can see this playing out a couple of ways.

For starters, stocks are already in a bear market.

Could we go lower? Yes. It’s possible.

Especially if earnings estimates start getting cut or if inflation continues to rise at this pace. Back in late May, I predicted that inflation would accelerate; the latest Consumer Price Index report is up more than 9% on a year-over-year basis — notching a 40-year high.

The S&P 500 peaked at about 4,820. It’s trading at about 3,800 as we talk, and we could see things go even lower.


KK (Q): Not the time to fold your hand.

MB (A): Absolutely not, Keith.

I’ve been an investment pro, in one form or another, for decades. I’m a devout student of market history. I’ve lived through — and navigated — a bunch of bear markets.

And the bottom line is this: Between April 1947 and April 2022, there have been 14 bear markets, with the S&P 500 dropping anywhere from 20.6% to 51.9%.

KK (Q): That’s an important bit of context.

MB (A): It really is. Especially when you consider what I said a moment ago — that we’ve already been down as much as 25% in this bear market.

Is that it? Is there more pain to come?

Look, the worst bear market I’ve experienced as a professional investor was the 2008 financial crisis — and stocks fell 40% then.

The real question we need to ask here isn’t “How low can this go?” The real question is: “What comes next?”

Because if we go back to that whole “playing the hand the market dealt you” approach we talked about, the stock market is dealing us an opportunity.

A big one.

KK (Q): And this isn’t hype. We’re talking cold, hard facts here.

MB (A): That’s right.

And those facts tell us this: Once you know you’re mired in a bear market, you also know that what comes next is a brand-new bull market.

If you look at the other bear markets that we’ve had over the last 50 years, and look at what came next, you’ll discover that just three years later, stocks were up 100% of the time.

The average gain early in those new bull markets is 56%. Even after that 2008 bear market, stocks more than doubled — up 102% — in a mere three years.


KK (Q): I always find it humorous when I hear anyone wish for the ability to see the future. And here they can. We already know how this story is going to end. So what should investors do about it?

MB (A): A great question — and one that I’ll answer with what I call the “Good/Better/Best” bear-market investing plan.

Let’s start with the “Good.”

Keith, you’re good about telling TradeSmith customers to think about “buying businesses, not stocks.” I mean, you’re evangelizing that mantra.

KK (Q): That’s right, Mike. In my work, in my writing, and in my talks, I urge investors to look at things like brand equity, market share, pricing power — and the many other factors that create a protective moat around a company’s core business and position it for long-term health. In a market as uncertain as this one, it’s a strategy that squeezes down risk and sets you up for longer-term success.

MB (A): Think of companies like Walt Disney Co. (DIS), which I know is a favorite of yours, PepsiCo. Inc. (PEP), or Johnson & Johnson (JNJ). Stocks like this have a long history of growing cash flow and dividends, so you get paid while you wait for the upside.

KK (Q): Let’s talk “Better.”

MB (A): Here, you’re talking about more growth-oriented companies — those that, in bullish markets, trade at very high multiples. These stocks have been beaten down, and many are now trading at multi-year lows. It may not be quite the time to buy these — TradeSmith’s trading tools can help light the way here — but the time to buy will come. And you’ll be greatly rewarded for your patience and resolve.

I’m talking about companies like Netflix Inc. (NFLX) — stocks that could end up as generational buying opportunities. They’re not there yet, but they will be. And you’ll be snagging them at prices, and valuations, not seen in quite some time.

KK (Q): Finally — and I’ve been wanting to drill into this with you – let’s talk “Best.”

MB (A): Now, more than ever, you need a strategy that gives you the potential for low-cost, lower-risk, and high-return investment alternatives to plain old stocks and bonds.

Just to be clear, I’m not talking about taking a speculative flier using stock options, penny stocks, or crypto.

I’m not dismissing any of those; each of those investment/trading vehicles has its place. But they’re not part of my strategy here.

What I am talking about is a strategy that involves using small amounts of cash to generate extra-high returns. I’m talking 4x, 5x, and 6x potential windfalls.

KK (Q): As you’ve detailed in talks that we’ve had, you’re looking at certain lower-risk, higher-potential-payoff alternatives to ordinary stocks that you can invest in — with a bonus that you’re using far less money out of your pocket.

MB (A): That’s right, Keith. I refer to this strategy as “alt shares.” Alt shares are a favorite of mine right now. My own investment portfolio includes dozens of alt-share positions.

I start by identifying stocks that have “double-your-money” potential. Then I look for “alt-share” ways to play them.

Here’s what most investors don’t realize: With the major indexes down 20% to 25% — and many individual stocks down much, much more — these “alt shares” are dirt cheap right now.

That’s what sets you up for the 400%, 500%, and 600% gains that I just referred to. And at much lower levels of risk than you’d find at any other juncture.

That’s why I’m referring to this as my “Best” bear-market strategy.

I haven’t seen this juicy of a setup for alt shares in at least a decade.

And I can’t say when we’ll see this kind of a major wealth window again.

KK (Q): Sounds exciting, Mike. Where can folks learn more about this strategy?

MB (A): Actually, Keith, I’m glad you asked. I’m hosting a special, FREE event: the 2022 Retirement Revolution on July 26 at 8 p.m. Eastern. That’s when I’ll go into more detail on alt shares and the huge opportunity they present right now.

I hope to see you there.