Main points
- Bear markets = -20%+ drops from recent highs, happen every 5-10 years on average
- Don't panic sell—90% of investors sell at the bottom, locking in losses
- Cash is king—keep 10-30% cash to buy dips when fear peaks
- Defensive rotation—shift to consumer staples, utilities, healthcare before crash
- Buy quality cheap—Apple, Microsoft, Nvidia at 40-50% off = generational opportunity
- Recovery is fast—those who bought 2008/2020 bottoms made 200-500% in 3 years
What Is a Bear Market? (And Why They're Inevitable)
Bear Market Definition: A decline of 20%+ from recent highs, lasting 2+ months.
Historical Bear Markets
| Bear Market | Peak to Trough | Duration | Recovery Time |
|---|---|---|---|
| 2000-2002 Dot-Com | -49% | 31 months | 54 months |
| 2007-2009 Financial Crisis | -57% | 17 months | 49 months |
| 2020 COVID Crash | -34% | 1 month | 5 months (fastest ever) |
| 2022 Tech/Inflation | -25% | 9 months | 12 months |
Average frequency: Bear markets occur every 5-7 years. We're due for another one soon.
Contrarian Take
Everyone's worried about Meta's metaverse spending. They should be. But what they miss is that Meta's AI advertising engine is so far ahead, they can burn $10B yearly on moonshots and still dominate.
Phase 1: Warning Signs (Exit Before the Crash)
Smart investors don't predict crashes—they read the signals:
Inverted Yield Curve
When 10-year Treasury yields fall below 2-year = recession within 12-18 months (100% accuracy since 1970). Start rotating to defense.
Fed Tightening Cycle Ends
6-12 months after Fed's last rate hike = crash risk peaks. 2007: Fed paused in June, crash started Oct. 2000: Fed paused May, Nasdaq crashed March.
Valuations at Extremes
S&P 500 P/E above 25x = overvalued. Nasdaq at 40x+ P/E = bubble territory. When everyone thinks "this time is different," run.
Market Breadth Deteriorating
Only 5-10 stocks (Mag 7) holding market up while 490 stocks falling = rotation already happening. Check advance/decline line divergence.
Action Plan: When 2+ signals flash, reduce growth exposure from 70% to 40%. Raise cash to 20-30%.
Phase 2: Crash Protection (Don't Lose Everything)
The 3-Bucket Strategy
Portfolio Allocation During Bear Market
Bucket 1: Cash & Short-Term Bonds (30%)
Keep 20-30% in cash (HYSA at 4-5%) or short-term Treasuries. This is your "opportunity fund" to buy the dip when panic peaks.
Bucket 2: Defensive Stocks (40%)
- Consumer Staples: Walmart, Costco, Procter & Gamble
- Healthcare: Johnson & Johnson, UnitedHealth
- Utilities: NextEra Energy, Duke Energy
- These fall 20-30% vs 50% for growth
Bucket 3: Quality Growth (30%)
Hold your best conviction longs (Apple, Microsoft, Nvidia) BUT trim position sizes. Don't sell everything—you want exposure for recovery.
Phase 3: The Buying Opportunity (When Blood Is in the Streets)
Famous quote: "Be greedy when others are fearful." Here's how:
Signals That We're Near the Bottom
- VIX (Fear Index) spikes to 40-80 (normal is 15-20). Extreme fear = buying opportunity.
- Put/Call Ratio above 1.5 = everyone betting on more downside. Contrarian signal.
- NYSE breadth thrust = 10+ days of 60%+ stocks advancing. Signals capitulation over.
- Fed pivots to rate cuts = liquidity coming back, bottom often within 3-6 months.
- Sentiment surveys at 10-year lows = maximum pessimism, time to buy.
What to Buy at the Bottom
| Stock Type | Examples | Why Buy |
|---|---|---|
| Quality Tech Mega-Caps | Apple, Microsoft, Nvidia, Amazon | These crash 40-60% but recover 200%+ in 2-3 years. 2008: Apple fell -60%, then 10x'd. 2020: All fell -30%, then doubled. |
| Beaten-Down Growth | Tesla, Palantir, Snowflake | High-growth names crash 70-80% but can 5-10x in recovery if fundamentals intact. |
| Dividend Aristocrats | J&J, PG, Coke, Berkshire | Safe compounders on sale. Buy at 3-4% yields, hold forever. |
| SPY/QQQ Index ETFs | S&P 500, Nasdaq 100 | If you're not confident picking stocks, buy the index at -30-40% off. Guaranteed to recover eventually. |
Dollar-Cost Averaging Strategy
Don't blow all your cash at once. Scale in:
- Market down -20%: Deploy 20% of cash
- Market down -30%: Deploy another 30%
- Market down -40%+: Deploy remaining 50%
Case Studies: Who Got Rich from Bear Markets
Warren Buffett (2008-2009 Financial Crisis)
What He Did: Kept $40B cash going into 2008. When panic hit, he bought Goldman Sachs, Bank of America, GE at fire-sale prices.
Result: Made $10B+ from those investments. Famous quote: "Be fearful when others are greedy, greedy when others are fearful."
Michael Burry (2020 COVID Crash)
What He Did: Bought GameStop, beaten-down small caps, value stocks at March 2020 bottom.
Result: GameStop 10x'd in 9 months. His fund returned 50%+ in 2020.
Retail Investor Success (You Can Do This)
2020 Example: If you bought $10K of FAANG stocks at March 2020 bottom:
- Apple at $55 → $180 by 2021 = 3.3x
- Amazon at $90 → $185 by 2021 = 2x
- Nvidia at $60 → $300 by 2021 = 5x
- Tesla at $90 → $1,200 by 2021 = 13x
Average portfolio: $10K became $30-60K in 18 months. Those who held 3+ years did even better.
Mistakes That Will Destroy You
Mistake #1: Panic Selling at the Bottom
90% of retail investors sell when market is down -30-40% ("I can't take it anymore!"). They lock in losses. Market recovers without them.
Fix: If you can't handle seeing your portfolio down 50%, you're overexposed to stocks. Keep more in cash BEFORE the crash.
Mistake #2: Trying to Time the Exact Bottom
"I'll buy when S&P hits 3000." It bottoms at 3200 and rips to 4500. You missed it waiting for perfection.
Fix: Scale in over time. Nobody catches the exact bottom. Buy when fear is extreme, not when you "feel" ready.
Mistake #3: Buying Garbage Stocks
Not all crashed stocks recover. Some go to zero (Lehman Brothers 2008, Hertz 2020, etc.).
Fix: Only buy QUALITY names with strong balance sheets. Avoid overleveraged, unprofitable, or dying businesses.
The BroBillionaire Bear Market Playbook
Before the Crash: Keep 20-30% cash, rotate to defensive stocks, reduce leverage.
During the Crash: Don't panic sell. Hold quality. Scale into positions as market falls.
At the Bottom: Deploy cash aggressively. Buy Apple, Microsoft, Nvidia, Amazon at 40-60% off.
Bear markets make millionaires. Don't waste the opportunity.