How to buy stocks during a down market.

Buy low and sell high is what they all say. But, what’s the most optimal way to do it? Well the answer is there are actually many ways to buy low and sell high. And, until after the market bottoms and turns around no one really knows what the best way to do it is. Here are 3 ways that 3 investors buy low and sell high during down markets:

1. Mark Cuban in a post March 2020 interview talked about investments during the pandemic instigated recession. His response to how he was managing his cash deployment into the market was, essentially, to buy large market cap growth stocks, blue chips, and indexes at 1% per red day and 1.5% per double digit red day. By the time the market is confirmed to be in a recession in the first place the market would have taken a significant drop already. So at this rate it would take approximately between 67 to 100 days for him to be 100% in the market after a recession is already confirmed. Which is typically ample time to find the market bottom and have a reasonable price into the market. This approach is nothing new. And, of course the 1/1.5% buy in rates could be adjusted to 2/3%, or 3/4.5%, or really anyway depending on if you wanted to enter a falling stock, ETF, or index that you speculate will find a bottom sooner rather than later.
2. Cathie Wood and ARK invest have stated multiple times that they like to utilize slow growth and stable stocks as parking lots with compounding potential. Takeda Pharmaceutical, Regeneron, Nintendo, Facebook etc. are all stocks you regularly find in ARK’s portfolios. Like clockwork when the market is high and for example there Tesla spikes to an above 12% portfolio allocation ARK will sell off there high growth stocks and buy into these stable slow growth parking lot stocks in hopes of compounding there gains but happy with keeping it there as a cash-like account as well. Then when the market dips and there high beta high risk high growth stocks get hit the hardest ARK sells those stable growth stocks and buy back into there biggest earners, the high growth innovation stocks. Easier to say harder to do. Management really is the key here. Not every person has enough time in the day to manage 35–55 stocks making decisions when to sell spikes and buy into stable slow growth stocks that could potentially compound on those gains made. And, when to sell those slower stocks to move back into the high risk high reward side of the portfolio. A good suggestion is to keep it simple for first time implementation. When you make a substantial spike in an investment maybe park it in Nintendo for a while and wait to buy back in your more speculative stock when it happens to fall.
3. Bill Ackman and the art of the short. Don’t forget the two sided market. The best way to maximize your gains during a down turn is of course to profit on the decline and then profit on the rise. During the 2020 pandemic Bill Ackman infamously took $27 million dollars leveraged it and then shorted the market to profit $2.6 billion dollars during the market crash. Then of course investing it back in the market during the upside. Incredible foresight this approach to a market downturn takes guts to say the least. Where will the market bottom? When does it start coming back up? Is the market in a recession or just a correction? When do you cover your short if the market suddenly ticks up? When do you sell your gains as the market is rising? I do not suggest taking all your money and leveraging it to try this method. Maybe take a measured amount of money to practice this approach while studying the market. Could return huge gains in the future when this very difficult to do aggressive investment strategy is mastered.

~Michael Zhang