Embrace the Selloff: Bull Markets Make Money; Bear Markets Create Fortunes

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That Time headline is based on the old market maxim: “Money is made in bull markets, but fortunes are made in bear markets.”

I bought my first stock — a high-yielding utility called Southern Co. $SO ( ▼ 0.01% ) — just after the October 1987 stock-market crash.

I was three years out of Penn State — and three years into my career as a newspaper reporter. And I guess the Oct. 19, 1987 crash — which delivered a 22% haircut to the Dow Jones Industrial Average — appealed to my journalistic mind.

After several weeks of digging, I remember thinking: “If markets are supposed to be so ‘efficient,’ how can stocks be worth ‘X ‘one day and ‘X minus 22.6%’ the next?”

Since it was my first foray into stocks, I decided to go “safe,” and chose that utility. Southern’s shares had been clobbered. But the dividend was deemed safe — so at the time I bought it the yield was somewhere between 10% and 12%.

Nearly 40 years later — after a half-dozen job changes … several geographic moves … a self-financed MBA … a new house … getting married and starting a family … and now co-founding a publishing venture — I still own some of those Southern Co. shares.

And I still have all the lessons I learned — call it a dividend that I’m still collecting — and most of the stocks I bought after that.

HOW WORRIES TODAY CREATE WEALTH TOMORROW

I’m sharing this personal story because those lessons are super timely. I mean, we’re right now looking at:

• A new presidential administration with new policies, a controversial cost-cutting plan, tariffs and potential trade wars.

• A “gambling mindset” that’s infected investors.

• The perceived death of the “American Dream.”

• Skidding stocks (the Nasdaq Composite — down 13% from its peak — is well into “correction” territory).

• And a widespread — and still-growing fear — that Americans can’t make ends meet.

After years of strong economic growth and a big runup in stocks, America is careening toward a period of uncertainty, volatility and risk.

It could get worse before it gets better.

And that “could get worse” could include a recession — the first downturn in America’s economy since the COVID-19 Pandemic. And it could include a bear market — a peak-to-trough where stocks drop of 20% or better.

Notice that I said “could.”

Fact is … nobody knows what’s going to happen next.

Not in the short term.

And anybody who says they do know “what’s next” is arrogant … delusional … guessing … or lucky.

(Or is named Doc Brown — and has “cracked the code” on the Flux Capacitor).

Again … I’m talking short term.

Now, in the long run, it’s a whole different story.

In the long term, we know that:

• Recessions end.

• Economies rebound and grow.

• Corrections and bear markets stop.

• And stocks go up — way up.

You see, in the long run, good news overcomes bad. Innovation inspires confidence. And investors get back on track.

Go back 125 years — and “replay the tape” — and you’ll have proof.

In 1900, the U.S. economy was worth $590 billion. And the Dow Jones Industrial Average — not quite four years old at the time — opened that New Century at 66.08.

Since that time, we’ve been through World War I and World War II, the Korea and Vietnam wars, two Gulf Wars, the beginning and end of the first Cold War, and the start of the New Cold War, 9/11, countless presidential elections, the Panic of 1907, the Great Depression, the Great Financial Crisis and the Great Recession, the Crash of ’29, the Crash of ’87, the Civil Rights Protests of the 1960s, Watergate, the Savings and Loan Crisis, the Dot-Com Bubble, the COVID-19 Pandemic, and those are just the highlights (or lowlights).

In nominal dollars, the U.S. economy has grown to $30.3 trillion — about 51.4 times bigger than it was back in 1900.

In “constant dollars,” we’re still talking $27.36 trillion.

And the bellwether Dow marched onward: It peaked this year at 45,073.63 — about 683 times higher than in 1900.

And while I’ve been “telling you” about this bear-market-wealth maxim, this graphic shows it:

So if the “Stock Market Story” plays out like this in the long haul, the key to successes to controlling emotions in the near term.

WEALTH-BUILDER RULES & WEALTH-BUILDER STOCKS

We’re Wealth Builders. We’ve made our money in the bull market. But we’ll set the table to make our fortunes in the rocky markets we could be facing in the weeks and months to come.

The “other” investors will chase market swings, will try to “outsmart the market” by trading stocks or speculating with options. And they’ll end up “buying high and selling low.”

They’re Wealth Killers.

Let me give you a couple simple-to-follow rules. And a “short list” of stocks to research for possible addition to your personal “Action List.”

Rule No. 1: Just Get Started

There’s always a reason not to invest. Uncertainty. Fear. The old “I’ll wait until ‘things’ become clear” excuse. (Today that excuse is the latest Federal Reserve meeting — and the hope for another rate cut.) But if “money is made in bull markets while fortunes are made in bear markets,” acting in lousy markets maintains “must-do” status. At Stock Picker’s Corner (SPC), we believe that “if you find the best storylines, you’ll find the best stocks.” We talk about those storylines every day.

Rule No. 2: Play the Long Game

For Wealth Builders like us, it’s the long run that matters. Indeed, if you look at the stretch between 1928 and 2022 – and slice that into 10-year increments – 94% have been positive.

The longer you go, the greater the odds you’ll navigate “events” like some of the ones I listed earlier. The better the chance that you can “smooth out” the near-term whipsawing that tends to accompany them. And the greater the chance you’ll have at smoothing out any of the mistakes that all of us occasionally make.

I’m not necessarily advocating a “buy-and-hold-forever” strategy.”

In his book, “Same As Ever: A Guide to What Never Changes,” author Morgan Housel tells us that a holding period of 10+ years is the ideal span — for generally the same reasons I’ve outlined here.

Wealth Builders invest.

Wealth Killers trade.

By focusing on the long haul, you avoid the ultimately ruinous allure of short-term trading, or speculative vehicles like options — which retail investors should avoid at all costs.

Rule No. 3: Focus on Money Doublers

Stocks have delivered an average return of 11% annually over the past 10 years.

At that rate, it would take 6.55 years for your nest egg to double.

Anything you can do to accelerate that a bit will help. For instance:

• At 12%, your money will double in six years.

• At 15%, it’ll double in 4.8.

• At 20%, it’ll double in 3.6.

If you want to find these “double-your-money” stocks, dig into our “powerful storylines.” It’s a shortcut that’ll give you an advantage.

Rule No. 4: “Accumulate” Your Way to Victory

I’m not talking about the same “Buy-the-Dip” strategy everyone else follows. The “Accumulate” strategy is much more strategic. Once the best storylines lead you to the best stocks, decide how much of the stock you’d like to own. Then start out with a “foundational” stake — like 20% to 25% of your ultimate goal. Then create a strategy to add to your holdings. For instance, with each 20% drop, you could add an additional 20% of your intended goal.

If you’re serious about fulfilling that maxim — and using a bear market to build that fortune — the Accumulate strategy is the key catalyzing agent.

Rule No. 5: Have That “Buy List” Ready

If we dig into our storylines, that yields some intriguing candidates, including:

• Special Situations, like “utility-in-the-making” Hallador Energy Co. $HNRG ( ▲ 0.12% ) Last summer, we recommended Hallador when it was trading below $6 a share. It soared to $14, then sold off again. Right now it’s at $12. And I still like it.

• The AI Era, which is more than just chipmakers. Way more, in fact. And there are two companies I have to list here — because both just this week made announcements that point to super-bullish futures.

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