Dear Aspiring Investor,
Shelby Davis isnât as well-known as Warren Buffett.
But the founder of Davis Investment Management has a hell of a story.
He famously turned $49,000 into almost $1 billion as a long-term investor.
His secret to a 27% a year return over the decades?
Ugly, bearish, brutal, chaotic markets.
When asked how he achieved such outstanding results, he said, "You make most of your money in a bear market, you just don't realize it at the time.â
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When building a portfolio, remember that the long-term portion should reflect the great truth that fortunes are born in bear markets.
We might be facing another one in the near future.
So, let me walk you through the best strategies to get started.
The Rules of the Road
âBuy low, sell highâ is the mantra of long-term investing.
While it sounds simple, that practice is ridiculously hard to accept.
Think back to those first few weeks of March.
That was the time to be putting in long-term buy orders.
High-quality stocks got absolutely bombed as COVID started a shutdown of the U.S. economy.
The S&P 500 fell below the 200-day moving average.
Then the 50-day confirmed the trend by crossing under the 200-day SMA, confirming the downtrend.
The long-term investor inside all of us should know that when stocks fall to 20% below the 200 day, it is a very good time to buy.
But there is an incredible amount of fear.
There was a rush to cash that only rivaled the hellish chases in the deserts of the film The Road Warrior.
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Many, many people just couldnât bring themselves to buy when the bottom hit in mid-March.
Thatâs the lesson.
While it may have been a smart time to be a long-term buyer, it was also a horrifying time to be a buyer of most stocks.
So, what should we do if this scenario arrives again?
Or we see a 10% pullback in the near term?
There are two ways to set yourself up for success as a long-term investor.
Both of those methods will help you exploit bad markets and be a bad market buyer.
There is a right time to use each of them, and they each have advantages and disadvantages to consider.
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