Has the market hit bottom or is it in a growth phase? Some say the bottom has passed while others disagree. Here’s how to prepare for a market bottom with examples.
According to some Wall Street experts, we were headed for the worst financial crisis ever. Looking at a chart of the S&P 500 Index (NYSEARCA: VOO), it appears the bottom may have passed. Does that actually mean we’ve hit the bottom? Not necessarily.
If recent events have taught us anything, it’s that market predictions almost always have eye-opening surprises that can fool even the most experienced among us; even Warren Buffet. After the Oracle of Omaha sold off nearly $4 billion of Berkshire Hathaway’s (NYSE: BRK.B) shares in the airline industry, airline stocks began to recover as the market adjusted to the “new normal.”
Just look at our returns versus that of the S&P 500! Click here to find out how we continue to beat the market and view the list of stocks we think will turn out to be the next Amazon, Tesla, or Netflix!
Whether it is coming or already passed, one thing we know is that the market has rebounded from recessions to hit all-time highs every single time.”
What Is A Market Bottom?
The market bottom is more of a technical analysis term. It’s the lowest level of a market price, also known as a support level, over a certain time frame. Day traders and swing traders often use these chart patterns as indicators of investment opportunities.
Ironically, long-term investors find themselves using the term as if it were a form of fundamental analysis when really it’s a technical indicator based on chart patterns of how the stock market moves. As long-term investors, the market bottom is irrelevant in most cases.
How to Predict A Market Bottom
The short answer: you can’t!
Who would have thought that despite record unemployment, a global pandemic, and economic breakdown that the stock market would continue to rise? Short sellers basing their decisions on the opinions of analysts “predicting” market bottoms have likely lost a fortune.
Just look at headlines like “Analyst anticipates ‘worst’ financial crisis since 1929” posted in March 2020 by CNBC and other similar headlines by reputable analysts.
What you can do is keep a long-term investing mindset, and pick good companies that you have reason to believe will withstand any market condition.
Consider the Following Companies…
COVID-19 has given insight to investors and the global economy that some companies were built to thrive in today’s market conditions. Companies like Zoom (NASDAQ: ZM), Fiverr (NYSE: FVRR), Amazon (NASDAQ: AMZN), and Shopify (NYSE: SHOP) are all great examples of companies who have hit all-time highs multiple times since the pandemic outbreak.
Other companies even saw a short-term decline and then surged to all-time highs, leaving investors scratching their heads in wonder. Consider a few of them:
On March 4th, 2020 Etsy’s (NASDAQ: ETSY) share price was roughly $62 per share. By March 20th, it had dropped to roughly $31 per share losing nearly 50% of it’s value in a few short weeks. Since then, Etsy has reached record highs of roughly $111 a share as of early July, 2020.
On February 4th, 2020 Peloton’s (NASDAQ: PTON) share price was hovering around $33 per share. By March 12th it had lost roughly 40% of its value, priced at roughly $19 per share from COVID-19 fears. Today, it’s at record highs at roughly $60 per share.
Some might say this was easy to predict with its at-home fitness technology, others may say they’d have never thought people would go out and buy a $2,000 bike during a pandemic and record unemployment rates.
On February 21st, 2020 Tesla (NASDAQ: TSLA) was hitting all-time highs hovering around $901 per share. When news of the global pandemic spread, it’s share price dropped to roughly $361 per share, or close to a 60% drop in price.
Since then, Tesla has achieved new record highs being priced as expensive as roughly $1200+ per share as of early July, 2020!
A company that sells cars for $100,000+ hitting record highs amid a global pandemic, an economic recession, and large civil rights protests and riots? Yeah, I could have predicted that…
How to Prepare Your Portfolio For Any Market Condition
If you’re looking to predict the market, the best way is to invest for the long term in vetted companies with strong financials, proven track records and a strong leadership team. Look for products you love and brands you are proud to promote. With this strategy, it’s fairly easy to predict a great company with high growth potential regardless of market conditions.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Cameron Williams is a freelance writer on finance and investment-related topics. Read more of Cameron Williams’ work here.