Seasoned stock-pickers like Warren Buffett welcome bear markets.
His fund spent $51 billion to snatch up stocks in the first quarter of 2022.
I’m not surprised Buffett has such conviction.
After all, he shelled out $34 billion in 2009 to acquire a railroad company.
The investment nearly doubled in value over the next four years.
So I’m sure he’ll do OK with his latest trades.
But looking at historical returns, Buffett is off the mark.
I have a chart for you that shows one next-gen sector is the place to be right now.
You’ll be shocked when you see how massive its gains were after previous bear markets…
Focus on the Rebounds — They’ve Been Huge
Bear markets aren’t created equal.
The magnitude and duration of the drawdown in a bear market can vary greatly.
Since bear markets can occur from a variety of factors, it’s not always clear when they’ll end … or what to buy when they do.
Some declines can take years before the market settles at a low. This happened during the early 1980s, the dot-com crash and the global financial crisis.
Other times, the market bottoms in just a matter of months. This played out in 1987, 1990, 1998, 2018 and, most recently, in 2020.
So if anyone tells you that a bear market has to last a certain period of time before rebounding, they’re mistaken.
Below is data ranging back to 1980 for every bear market in the Russell 3000 Index.
The Russell 3000 is a good proxy for the U.S. stock market, since it measures the performance of 97% of investible U.S. stocks.
(Source: Bloomberg.)
As you can see, each bear market looks a bit different. But the most interesting story from the data lies in the rebound, or what turns out to be the following bull market.
Bull markets have lasted much longer than their preceding bear markets.
Since 1980, every single new bull market took longer than a year before reaching its next peak. In most instances, the rebounds were huge.
Now, keep in mind this data is only looking at the Russell 3000, a large basket of stocks.
Upside in specific stocks can be much, much higher.
Big Returns Are Ahead for Next-Gen Stocks
Warren Buffett’s recent investments were heavy in industrials and energy.
But as you can see below, the S&P 500 Information Technology Index has generally been one of the top-performing sector indices coming out of bear markets.
In the longest two bull markets in recent history, it rallied over 500%.
(Source: Bloomberg.)
Size and style are other considerations to consider as you pick stocks for the next bull market.
Small-cap growth stocks (Russell 2000) and large- and mid-cap growth stocks (Russell 3000) are often top performers as new bull markets unfold.
These indices are full of next-gen companies with huge growth trajectories.
The data supporting tech and growth stocks makes me confident that the stocks in Strategic Fortunes have massive gains in store.
Ian King and I have recommended many innovative companies that are set to surge thanks to tipping-point trends.
And the bear market we’re in now is giving us great opportunities to buy at low prices.
This opens the door for big returns as the new bull market takes shape.
Regards,
Research Analyst, Strategic Fortunes
Morning Movers
From open till noon Eastern time.
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