I am keen to liken stock investing to a roller-coaster ride. How so? Well, the drops can be immediate, steep, and stomach-churning. The average bear market lasts roughly 10 months. The average decline is 36%, explains Steve Mauzy, editor of Wyatt Research's Personal Wealth Advisor.
The rise, on the other hand, can be ratcheting and slow to the point of imperceptibility. The average bull market lasts 32 months. The advance, though, has averaged 114% from the previous trough.
Returning to our roller-coaster analogy, the stock market gives us a perpetual ride marked by steep drops, with gradual ascents that reach highs that exceed the previous high (which means the next trough will probably be higher than the previous trough).
Let’s extend the roller coaster analogy further. When are you most likely to get hurt on a roller coaster? When you attempt to get off mid-ride. Consider this:
Half of the S&P 500 Index’s strongest days over the past 20 years occurred during a bear market. Another 34% of the index’s best days occurred in the first two months of a bull market — before it was clear a bull market had begun. In other words, you’re best off to remain seated.
Have you noticed we have a collection of thirties on our hands? Thirty-six percent average decline, 32 months average bull market, 34% of the best days. They segue into my 30% rule: I become a motivated buyer when I see the major indexes down 30% or more. I vet the best of the bunch for new investment, focusing particular attention on those stocks down more than 30%.
We have no guarantee that the share price won’t descend further. Thirty percent can give way to 50%, which can give way to 70%. That said, the best stocks offer the best odds of returning to, and exceeding, former glory.
Let’s consider Apple (AAPL), one of our total return recommendations. No company has created more wealth for investors than this behemoth. Apple created $1.47 trillion of wealth over the past decade (2010 through 2019). It wasn’t a straight shot, by any means.
Apple shareholders endured a 39.5% drawdown between September 2012 and June 2013. If you had bought Apple shares at the peak price before the drawdown, you’d still be OK. Even at the 2012 peak, your Apple investment today would have returned 18.9% annually on average on price appreciation alone.
No surprise here, investors who bought after the 30% discount have fared better. Apple shares had lost 30% of their value by January 2013. Had you bought at the lower price, your discounted Apple shares would have returned 24.6% annually on average on price appreciation.
The recent sell-off has produced 30% or more discounts on many of our Personal Wealth Advisor recommendations. The deepest discounts are found in the Growth Portfolio. This is no surprise. The Growth Portfolio is populated with our fastest-growing recommendations that are also our most speculative recommendations.
If you would like to exploit my 30% rule, consider sticking with the tried-and-true at this point. I offer the following 12 recommendations that are tried and true. These companies have a track record. They have a history I like. All 12 returned with a vengeance after the last real bear market (2008-2009).
Here are my the top picks from our recommendation lists that meet my 30% rule:
• Amazon (AMZN)
• MKS Instruments (MKSI)
• Micron Technology (MU)
• 3M (MMM)
• Magna International (MGA)
• Intel (INTC)
• Starbucks (SBUX)
• Medtronics (MDT)
• D.R. Horton (DHI)
• S&P Global (SPI)
• Stanley Black & Decker (SWK)
• Expedia Group (EXPE)
Interestingly enough, the list is diverse. If you are uncomfortable picking a stock (or two, or three, or…), you might consider a niche carve-out allocation that includes all 12 stocks. Diversification, after all, reduces risk.
