By far the best investments in a bear market are high-quality ones that you can feel confident about holding over long periods of time. Here’s how to spot them

A bear market is a long-term period of falling prices that typically lasts a year or two. The best investments in a bear market focus on high-quality companies with a history of success.

The best way to maximize your long-term stock growth is to follow TSI Network and use our three-part Successful Investor strategy to find those stocks.

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Interpreting statistics on past bear markets may not always help you anticipate the future

Our view is that you can now safely disregard the figures, or statistics, on past bear markets.

The financial media and investment industry have been publishing lots of stats on past bear markets—the range of how long they lasted, how deep a loss they brought on (from the market peak to the low), average and median figures for each of these measures, and so on.

The recent bear market is well into the middle of the range for losses. It’s noteworthy in that the drop took place much more quickly than past market downturns. But this tells you nothing about what happens next.

Learn why timing is not the key to making the best investments in a bear market

The best approach is to find top stocks in a bear market is to take into account your personal finances, goals and temperament.

Many investors try to improve their results with opinions about short-term market trends. This rarely adds to their long-term returns, and can, in fact, lead to significant losses. When you make investment decisions, it’s generally best to disregard the short-term outlook for a particular stock or the market as a whole. Instead, think about how it might look two to five years in the future. After all, you should only buy stocks if you can afford to hold them for two to five years.

This seems illogical to some investors—“If I don’t know what will happen a month from now, how can I figure out what will happen in five years?” The answer is that random factors weigh heavily on short-term results, so they are far more erratic than long-term results. However, high-quality stocks tend to produce good long-term investment results.

To put it another way, a company’s long-term success and profitability have a big impact on the long-term performance of its stock. That’s why you should focus on the long term. In a lifetime of successful investing, most of your profits come from gains you’ve built up in stocks you’ve owned for years and decades.

Realize that the best investments in a bear market are long-term, high-quality stocks you feel confident in

Long term stock growth is the investment goal of TSI Network. Long term stock growth is the gradual accumulation of stock market profits over decades. And because you’re investing for a long period of time, short market fluctuations have very little impact on long-term gains.

Meantime, you need to pay attention to steady drains on your capital, even seemingly small ones—like high brokerage commissions, say, or a high MER on a mutual fund. Losing (or missing out on a profit of) even 1% a year can have an enormous draining effect on your total return in a decade or two.

Use our three-part Successful Investor approach to pick the best investments in a bear market, or any market for that matter

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

Bonus tip: Understanding a signature characteristic of a secular bull market and the faulty rationale for trading can keep you away from poor decisions

In a secular bull market, “they’re no longer cheap” is a particularly insidious rationale for selling. As we’ve mentioned, most stocks are cheap at the start of a secular bull market. As time passes and the rise continues, investors get more confident. A virtuous circle develops. Investors are willing to pay ever higher prices for earnings, sales and improving prospects, and this leads to higher levels of earnings, sales and prospects, pushing investor confidence and stock prices higher still. Eventually the fun ends, of course, but conservative investors tend to underestimate how long it can last.

If you sell when stocks are simply “no longer cheap” (or are “fully priced,” as a broker might put it), you might well miss out on a lot of profit.

One telling characteristic of a secular bull market is that the stock market generally outdoes investor expectations. It seems to shrug off bad news and rises higher and longer than most investors thought likely.

Does your investing strategy change during a bear market or do you consistently stick to an investing strategy that you feel confident in, regardless of the market’s position?

How have your stocks held up through previous bear markets?