7 Tips On How To Survive A Bear Market
Trump has gone too far. It is now time to prepare for the bear market his regime has caused.
Do you invest with a focus on tech and growth stocks, like me? Then your stock portfolio has probably taken a significant beating in the past two months since U.S. President Donald Trump took office, just like my model portfolio.
How did you feel about that?
Did you stare at the falling (and sometimes rapidly rising) prices about 27 times a day, consuming a lot of your nerves and time?
Then this post is for you!
Many of you have never experienced a full-blown bear market. That's the term used to describe a phase in the stock market when prices fall for an extended period of time. Stock markets have spoiled investors for 20 years, with the exception of the pandemic crash in March 2020 (which was over in a matter of weeks) and another particularly painful period for tech investors in 2022.
The old-timers among you may remember the distortions caused by the financial crisis of 2008/2009, when the Nasdaq index plunged by more than 50%. On the long-term chart, this sharp correction is only a small dent.
And only old stock market hands remember the period after the dotcom bubble burst in 2000-2002: the Nasdaq Index lost -80% of its peak and then took 13 years to reach a new all-time high in 2015. What followed was a 10 year period of new price records.
What's Going To Happen Next In The Stock Markets?
Unfortunately, my crystal ball is still broken. That means I have no idea if there is more trouble ahead.
Fact is:
The Nasdaq100 Index has "only" corrected about 17% so far.
The S&P 500 Index is only 13% below its peak.
But for shareholders in the particularly volatile tech stocks, it actually feels like a bear market: The Nasdaq Cloud Index, which focuses on SaaS stocks, has lost more than 25% in the past few weeks and is again more than 50% below its 2021 peak.
You should be prepared for the possibility that equity prices could continue to fall for some time. The global macro environment, with the erratic policies of the Trump regime, the threat of a US recession and an escalating trade war (at least between the US and China), certainly looks that way. In this environment, the valuation of the broad US equity market still looks far from cheap.
But even this negative scenario is not the end of the world for us equity investors: In my 35 years in the stock market, I have seen a number of bear markets and I can tell you:
Yes, especially the first bear market feels really modest and nerve-wracking.
But with the right strategy, as a medium- to long-term investor, you can outperform even in times of generally falling prices.
However, you have to accept that in a bear market there will be one or two years in which you will suffer significant losses. This is because in a bear market, all stocks, regardless of their quality, are initially sold off. And on bad days, the smaller stocks, which are more sensitive to market conditions, often suffer even more than the blue chips. This is exactly what we have seen in recent weeks.
In my experience, however, the recovery that follows is all the stronger if you have the right quality stocks in your portfolio. In any case, I have in the past always achieved the greatest outperformance in these phases after the end of bear markets.
Here are some specific tips on how to behave in a bear market:
1. Beware of "Buying the Dip"
In a true bear market, it is by far not the case that every major price correction is an opportunity to buy more. What happens to your investment if you buy after an 80% correction, but the stock loses 90% in the bear market before reaching its low?
Then you are initially sitting on a 50% book loss.
You think that's an extreme example of a meme stock?
Then let me remind you that even Amazon initially lost well over 90% after its IPO (1997) when the dot-com bubble burst in the 2000/2001 bear market. Only then did the stock begin to rally and is now up over 100,000% since its IPO!
2. Volatile Stocks Often don't Bottom Out
Some investors advise getting out of relatively highly valued tech and growth stocks in a bear market to "wait for a bottom". I don't believe in that. As we have seen time and time again in recent corrections, tech stocks, in particular, often experience a downward exaggeration followed by a rapid V-shaped recovery.
Waiting for the bottom to form means missing the re-entry. However, you should only expect such a V-shaped recovery in an environment of generally falling prices for a stock if, despite falling prices and valuations, good fundamental news continue to come from "your" company.
This news may get lost for a while in the general doom and gloom of a bear market. In the long run, however, good news and financial results will be reflected in the share price and support or accelerate a price recovery.
In the end, quality prevails. And the price of a company on the stock exchange (i.e. the share price) will always converge to the real value of the company in the medium to long term, even after a downward exaggeration.
3. Buying Stocks On Credit Is A No-No
In any prolonged bull market, there are many particularly greedy speculators who use margin loans to increase their returns.
I advise all individual investors not to take advantage of the margin loans that brokers are happy to grant. Even if they seem tempting in times of relatively low interest rates and high stock returns.
After all, what happens when prices take a nosedive?
The shares accepted by the bank as collateral for the loan lose value (even if only temporarily) and, if they fall below the lending limit, trigger the infamous "margin calls". This means the bank will demand that you balance your account.
Often, this is only possible by selling securities that actually promise success. In the worst case, you would have to sell involuntarily in the middle of a bear market at unfavorable prices and realize your losses. Or your bank could liquidate your portfolio for you. This is the worst-case scenario.
Buying stocks on credit can have unmanageable consequences and should be avoided at all costs.
A similar effect of forced selling (involuntary selling) can occur in a bear market in equity funds that are struggling with outflows. If many investors want to exit an equity fund more or less simultaneously in the face of falling prices, fund managers will have to sell shares in the short term in order to be able to pay out investors' deposits, whether they want to or not.
It is not easy to recognize when we are dealing with involuntary selling in a bear market. But for me, it is a good sign when a point is reached in a longer-term downtrend that is characterized by extreme price swings to the downside, the so-called capitulation of investors.
It is usually only after this wave of often forced selling has passed that the crash has run its course for the time being and a countermovement (bear market rally) becomes more likely.
4. Cash is King
I am a big fan of holding a larger cash reserve in uncertain times in order to be able to react flexibly to market disruptions.
When stock prices fall sharply, attractive buying opportunities arise for quality stocks at low prices. Those who have cash on hand can take advantage of these opportunities, while those who are fully invested can only watch. Warren Buffett sends his regards.
If you remain fully invested in a bear market, you are exposed to the risk of further price losses without protection (at least with a long-only portfolio). A cash reserve helps to better protect your portfolio against drawdowns. If you hold a 20% cash reserve, a broad market sell-off will only affect 80% of your portfolio.
Cash provides security. If you know you will not be forced to sell at a low, you can be more rational and less likely to lose your nerve. Panic selling tends to occur at the worst possible time: those who stay calm and ideally have cash will win in the long run.
With cash, you can make deliberate countercyclical purchases during the crisis to strategically adjust your portfolio. For example, you could buy more stocks or enter the market when stocks are 30-50% below their fair value. I explain how to roughly estimate the fair value of a tech stock in my high-growth investing 101 article.
But one thing is also clear: If you hold too much cash during a boom, you will miss out on potential gains. That's something you'll have to live with if you choose to maintain a strategic cash reserve.
5. Buying In Small Tranches
It is usually impossible to perfectly time purchases in falling markets to catch the lows. Therefore, I recommend a staggered entry or re-purchase into falling prices.
If I am convinced of the value of a company in the real world outside the stock market, and correspondingly of the undervaluation of a share, I always take advantage of falling prices to make new purchases in small tranches.
Malicious gossip calls this a "ruinous buyback strategy." And indeed, I have had my fingers burned a few times in recent years by buying too much too soon. But over the past 35 years, my greatest successes have always been those times when I bought the shares of "my" companies with conviction when, after heavy price losses, hardly any other investor wanted them any more.
The individual trades in my long-only model portfolio show exactly this behavior. I usually buy in small tranches, only 1-2% of the total portfolio.
Have we already seen the bottom in "my" stocks? Unfortunately, I don't know any better than you do.
6. Rebalancing In A Bear Market Rally
In a true, long-lasting bear market, there are always strong short-term upward countermovements, called bear market rallies. In this phase, a stock can easily rise +50% in a short period of time after being cut in half (by the way, it still lost -25%!) before the next wave of declines begins with new lows.
The last time we experienced a bear market rally in tech stocks was in the summer of 2022, when the Nasdaq Cloud Index rose 33% from mid-June to mid-August before falling to new lows. Individual tech stocks, such as Elastic from my portfolio at the time, rallied as much as 100% during this period before falling further.
If you have built up a decent position in a "bombed out" stock through several follow-on purchases, then a bear market rally like this can be enough to cause an unwanted overweight of that stock in your portfolio.
It is important to maintain the diversification of your portfolio even during such bad market periods. I recommend a maximum weighting of 10-12% (15% for smaller portfolios) in any individual stock. If a position has become too large due to a countermovement, I recommend reducing the position - even if the stock still seems undervalued in the long term.
This rebalancing is done solely to optimize diversification and has nothing to do with an assessment of further price potential.
7. What About Short Positions?
I have avoided speculating on falling prices for decades and still believe that most private investors are well advised to limit themselves to long-term investments in promising companies (long only). Especially for inexperienced investors, shorts are full of pitfalls and make portfolio management more complex. This is why I advised against shorting during the last major bear market.
From today's perspective, my conclusion from 2022 in my German blog (Should you bet on further falling prices in lousy stock market times? only available in german) has not aged particularly well. I myself was frustrated in the 2022 bear market by the fact that, as a long-only tech investor, I could not escape the market trend, even though I was essentially right about the overall market at the time. So I started gaining experience in shorting overvalued tech stocks. In my long/short portfolio on eToro, I hold selected short positions in addition to my long investment ideas, depending on the market situation.
In a bear market, I use such speculation on falling prices primarily to limit losses and hedge the overall portfolio somewhat. This is working quite well at the moment: since the beginning of 2025, my long/short portfolio on eToro has lost 7% and outperformed the Nasdaq. Meanwhile, my long-only investable model portfolio (in EUR, with largely the same investment ideas) has corrected by a full 20%. However, the current weakness of the dollar has also contributed significantly to the large difference.
I am very curious to see how a long-term comparison of the two investment approaches (long-only versus long-short) will turn out. I will, of course, continue to report on it here on my Substack.
Instead of a conclusion, I would like to end this post with a stock market quote on this topic:
It takes three bear markets to know what to do. The first one almost wipes you out, the second one teaches you how to survive, and the third one you grab by the scruff of the neck and enjoy.
(Crispin Odey)
If you would like to "enjoy" the next bear market together with me, you can subscribe to my 100% free Substack here.
*Disclaimer: This post is an expression of opinion and not investment advice. Please read the legal information. The author and/or persons or companies associated with him are short Tesla, Palantir, Nvidia, Apple and C3.AI (as of 6/2/2025). The author and/or persons or companies associated with him are affiliated with eToro through an affiliate partnership and through the Popular Investors Program. Copy trading does not constitute investment advice. The value of these investments may rise or fall. Your capital is at risk. 51% of retail CFD accounts lose money at eToro."
I enjoy articles like this where I can check boxes and compare my process to others (some confirmation bias?). They can also reinforce logical decision-making.