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2022 was one of the most severe bear markets in recent memory. The S&P 500 fell about 20%, and the tech-heavy NASDAQ index fell 30%. Canadian stocks fared slightly better. The S&P/TSX 60 index fell just 9% for the year, with a heavy concentration in oil — the best sector of the year. Even then, it went down for the year.
It is normal to feel nervous at times like this. It’s natural to worry when stocks fall, because instinctively, it seems like you’re losing money as stock prices fall. However, when stocks fall, it often happens that they rally very quickly afterwards.
In this article, I will reveal how to prepare for a possible market boom in 2023.
Save money
One of the keys to preparing for a bear market is saving money to invest. You cannot invest without money, so saving is important. Technically, you could invest with borrowed money, but that’s a lot more risky (and you could lose more), and it’s definitely a questionable strategy when interest rates are high this year. So, focus on saving money first. This will help you avoid risky debt-based investment strategies.
Carefully research which stocks you buy
Once you have saved up money to invest, you should carefully research which stocks you are going to buy. This is the most time-consuming part of the investment process. Doing adequate research on a stock requires many hours of work. You can shorten the process by buying index funds, which hold the entire market, but if you own individual stocks, you need to do your homework.
Consider Food Gooch-tart (TSX:ATD) share, for example. On the surface, this stock looks like a slam-dunk buy. It’s up more than 1,000% in a decade, has a great retail brand (Circle K) that’s known across Canada, and its management team has a great reputation.
It looks good at first glance. But when you look at it, you can say that Alimentation Couche-Tard is exposed to some risks. It makes a lot of money from selling fuel, so it is vulnerable to falling oil prices. It has significant debt, which generates interest expense. Finally, it sells cigarettes and alcohol, “ancillary” products, subject to regulations, which may increase. After a quick look at these risk factors, you may conclude that ATD stock is very risky. Nevertheless, there is a more in-depth analysis, after which you can conclude that the risk factors are high. For example, ATD’s credit status Only 26% of the shares (Equity is assets minus liabilities), so it’s not really high compared to what the company owns.
To truly understand a company, you need to consider these types of things. At first glance, big-name companies are attractive. When you look deeper, you start to notice some risks. When you look deeper, the dangers sometimes seem exaggerated. You need to look at all kinds of different factors to make an informed decision on a stock. So, always do your research.
buy
The final step in making investments is buying stocks after researching them. It’s technically simple, but you need to put some thought into which accounts you’ll be holding the shares in. If you hold stocks in a tax-free savings account, you don’t pay taxes on them, which is a big advantage. Be sure to consider the variety Retirement Accounts Available before you buy shares. When in doubt, talk to a counselor.
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