Bear markets can be gut-wrenching. Watching your investments plummet in value and seeing your hard-earned money evaporate into thin air is not pleasant, to say the least.
However, a select few stocks can help you not just protect your wealth during these turbulent market times, but also grow it.
The bargain hunter
One of the many great things about Berkshire Hathaway (BRK.A -0.54%) (BRK.B -0.38%) is that it tends to create tremendous value for its shareholders during periods of market distress. The mega-conglomerate is led by Warren Buffett, one of the most successful investors of all time.
Buffett excels at identifying mispriced assets, such as businesses that have temporarily fallen out of favor with investors. During bull markets, these opportunities are few and far between, but during bear markets, these profit opportunities are abundant. This is when Buffett is at his best.
In recent years, Berkshire's plethora of high-quality operating subsidiaries -- which include top-tier companies such as GEICO Auto Insurance, BNSF Railway, and Precision Castparts -- have generated so much cash that Buffett now has more than $100 billion in reserves just waiting to be deployed. This gives the legendary investor plenty of dry powder to put toward another blockbuster acquisition during the next market decline. Buffett will also likely use the funds to make big bets on great businesses such as Apple and Bank of America as prices fall, further strengthening Berkshire's investment portfolio in the process.
Better still, Berkshire's diverse set of operating businesses will continue to crank out cash during the downturn. This will help to restock Berkshire's coffers and position the $500 billion behemoth -- and its shareholders -- to once again profit from any subsequent market declines.
The exchange titan
Like Berkshire Hathaway, CME Group (CME -0.51%) tends to benefit when volatility returns to the financial markets.
As the world's largest futures exchange, CME Group profits from the increased trading that often occurs during periods of market turbulence. Futures contracts are binding agreements that allow people to buy or sell an asset at a specified price and time. While they can be used for speculation, they're more often used to limit risk.
CME Group's futures exchanges allow investors to hedge their positions in areas such as stocks, currencies, interest rates, energy, precious metals, and agricultural commodities. Traders can also use futures contracts to place bets that prices will fall.
Demand for both of these strategies rises significantly when fear returns to the markets. This, in turn, boosts trading volumes on CME Group's exchanges and helps to drive its revenue higher during bear markets.
Moreover, as a mostly fixed-cost business, the increased revenue CME Group generates during these periods falls nearly entirely to its bottom line. The exchange giant passes much of these profits on to its shareholders via a combination of regular quarterly and variable annual dividends, which together have amounted to more than $11 billion since it initiated its variable dividend policy in 2012. In this way, investors can expect the next market downturn to help CME Group put even more money in their pockets.