What Smart Investors Do In Bear Markets

Bear markets can be stressful for investors, especially if you’re unprepared for an extended downturn. A bear market is a period of declining stock prices, typically defined as a 20% or more drop from recent highs. Bear markets can last for months or even years. They can be caused by factors such as a recession, geopolitical instability, or a market bubble bursting.

Knowing how to survive a bear market is essential. This post dissects what smart investors do to survive bear markets and protect their investments.

Bear Markets Explained

Before we dive into the strategies for surviving bear markets, it’s important to understand what a bear market is and what causes it. Bear markets are a natural part of the market cycle. They’re caused by various factors such as economic downturns, geopolitical uncertainty, or changes in monetary policy.

One of the defining characteristics of bear markets is high volatility. Stock prices can swing wildly daily, and it can be tempting to panic and sell your investments. Moreover, the market can go on a face-ripping rally only to resume its downtrend. That’s why bear markets kill breakout traders. 

However, smart investors understand that bear markets are temporary and focus on their investments’ long-term outlook.

Smart Investment Strategies For Bear Markets

  • Diversify your portfolio

One of the most important strategies for surviving bear markets is diversification. A diversified portfolio includes a mix of different asset classes, such as stocks, bonds, and real estate, as well as different sectors and geographies.

Diversification helps reduce your portfolio’s risk by spreading your investments across different asset classes and sectors. As a result, when one part of your portfolio is underperforming, another part may be doing well, helping to offset your losses.

This is one of the benefits of Macro Ops. We’re a global macro shop. If stocks aren’t working, we’ll switch to currencies or bonds or commodities. There’s always a bull market somewhere, and it’s easier to find it if you have a global mandate.

  • Invest for the long term

Another key strategy for surviving bear markets is to invest for the long term. Smart investors understand that the stock market is cyclical and that bear markets are a natural part of the cycle. Therefore, they focus on the long-term outlook for their investments rather than short-term fluctuations in stock prices.

Investing for the long term allows you to ride out the ups and downs of the market and take advantage of the power of compounding. Over the long term, stocks have historically provided higher returns than other asset classes, such as bonds or cash.

  • Keep a level head

Panicking and selling your investments can be tempting during a bear market. However, smart investors understand that emotions can cloud their judgment and lead to poor investment decisions.

Keeping a level head during bear markets means sticking to your investment plan and not making rash decisions based on fear or anxiety. It also means avoiding the temptation to time the notoriously difficult market.

One way to keep a level head is to avoid looking at your investment account daily. Don’t look at your daily PnL swings. They’ll make you sick. Focus instead on the long-term viability of the businesses you’re invested in. Are they growing their competitive advantage? Is management doing smart things during this difficult time? If so, don’t sweat the daily random gyrations.

  • Focus on high-quality investments

In bear markets, it’s essential to focus on high-quality investments. High-quality investments have strong balance sheets, a history of stable earnings, and a competitive advantage in their industry.

Low-quality investments are often hit the hardest during bear markets as investors flee to safety. Smart investors focus on high-quality assets likely to weather the storm and come out stronger on the other side.

  • Consider defensive investments

Another strategy for surviving bear markets is to consider defensive investments. Defensive investments, such as utilities, consumer staples, and healthcare, hold up well during market downturns.

Defensive investments can provide a buffer for your portfolio during bear markets, helping to reduce your losses and provide stability. However, it’s important to note that defensive investments may not offer less upside potential than other investments during bull markets.

What To Do In A Bear Market

In addition to the strategies mentioned above, there are several specific steps you can take to protect your investments during a bear market.

  • Don’t panic and sell your investments

During bear markets, resisting the urge to panic and sell your investments is important. Selling your investments during a bear market can lock in your losses and prevent you from participating in the market recovery.

Instead, focus on your long-term investment plan and ride out the storm. Remember that bear markets are temporary, and the market has historically recovered from every prior bear market.

  • Keep adding to your investments

During bear markets, it can be tempting to stop investing altogether. However, smart investors understand that bear markets can provide buying opportunities.

By continuing to invest during bear markets, you can take advantage of lower stock prices and potentially increase your returns over the long term. This strategy, known as dollar-cost averaging, involves investing a fixed amount of money at regular intervals, regardless of market conditions.

  • Look for buying opportunities

Bear markets can provide opportunities to buy high-quality investments at a discount. Therefore, intelligent investors look for buying opportunities during bear markets and take advantage of them when they arise.

However, it’s important to do your due diligence and ensure that your investments are high-quality and have a strong long-term outlook.

  • Rebalance your portfolio

During bear markets, your portfolio may become unbalanced as some investments underperform while others outperform. Rebalancing your portfolio involves selling investments that have performed well and buying investments that have underperformed, bringing your portfolio back into balance.

Rebalancing your portfolio can reduce risk and ensure you’re still on track to meet your long-term investment goals.

  • Review your investment strategy

Bear markets can be a wake-up call to review your investment strategy and make any necessary adjustments. Smart investors take the time to review their investment strategy during bear markets and make changes if needed.

This may involve adjusting your asset allocation, diversifying your portfolio further, or reassessing your risk tolerance. In addition, reviewing your investment strategy during bear markets ensures you’re still on track to meet your long-term investment goals.

How To Survive Bear Markets

In addition to the strategies and steps mentioned above, there are a few other considerations to consider when preparing for bear markets.

  • Have an emergency fund

Having an emergency fund can provide a safety net during bear markets. An emergency fund is a cash reserve that you can use to cover unexpected expenses or to help you weather a financial downturn.

During bear markets, it can be tempting to dip into your investment portfolio to cover expenses. However, having an emergency fund can help you avoid selling your investments at the wrong time and prevent you from locking in losses.

  • Pay off high-interest debt

Paying off high-interest debt, such as credit card debt or personal loans, can significantly boost your finances during bear markets. But on the other hand, high-interest debt can eat into your investment returns and make it harder to weather a financial downturn.

Paying off high-interest debt can free up cash flow and reduce your financial stress during bear markets.

  • Consider a professional financial advisor

If you need help preparing for bear markets or want a second opinion on your investment strategy, consider working with a professional financial advisor. A financial advisor can help you create a customized investment plan based on your goals, risk tolerance, and financial situation.

A financial advisor can also provide guidance during bear markets and help you stay on track to meet your long-term investment goals.


Bear markets can be challenging for investors, but they don’t have to be a disaster. Smart investors understand the nature of bear markets and have strategies to protect their investments during downturns. 

By maintaining a diversified portfolio, staying invested for the long term, and taking advantage of buying opportunities, you can come out of bear markets with your investments intact and even grow your wealth over the long term.

Remember to stay disciplined, avoid panic selling, and maintain a long-term perspective. By following these strategies and steps, you can survive and thrive during bear markets.

However, it’s important to remember that investing always comes with risks, and past performance does not guarantee future results. Consider consulting with a financial advisor and researching before making any investment decisions. With a solid investment strategy and a long-term outlook, you can weather bear markets and reach your investment goals.

For more, check out our free guide covering lessons from the greatest traders and how they survived bear markets by clicking here

Subscribe To Our Newsletter

Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.