How to invest in a bear market

Dollar cost averaging requires discipline and continuing to buy into the market even when things look awful.

For net accumulators, a 5% to 10% decline in the markets like we just had last week is a buying opportunity.

But it’s not enough to simply say, “Yes, I will buy when the market is lower.”

You have to be more specific. You need a plan.

This is because “lower” or “the dip” is not an actual price.

“I’ll buy once the market drops further,” is too generic to be actionable. That’s like saying, “I’ll fill up the tank when gasoline is cheaper.”

What if you miss the boat and things only get more expensive from here?

Setting specific targets

A better way to invest in a bear market is to set price targets to DCA into the stocks or ETFs that you wish to accumulate. 🙂

For example, these are the levels I’ve set for myself with Alphabet (GOOG/GOOGL).

I’ve labeled the purple lines as 1, 2, and 3 on this multi-year chart, based on technical support and resistance levels.

I bought 100 shares earlier this year when GOOGL fell below the $122 horizontal line.

Then I bought another 100 shares last week when the stock fell below the second line at $103.

If Alphabet continues to fall to $90, I will average down and pick up another 100 shares at the third price target.

Your price targets could look different from mine.

You can use technicals, fundamentals, or a combination of the two to help you decide where your price targets should be.

Control for position sizing

You can buy 10 shares at at time, or even 1 share, depending on your capital requirements and portfolio size.

If you’re waiting for a cheaper price, define what that looks like and write it down.
Don’t wait for stocks to get cheaper before buying if they’re already on sale now.

Also don’t buy everything all at once as that will concentrate all our risk into a single price.

In this current stock market environment it’s better to buy in increments and use dollar cost averaging to build a position over time.

You probably won’t time the exact bottom. I certainly didn’t when the GOOGL shares I bought before fell and I incurred a 4 figure loss on paper this week.

But the market will rebound and reach a new all time high some day. And when it does, you’ll be glad you were buying along the entire way. 😀

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Random Useless Fact:

Sometimes engineers look towards nature for inspiration.