Last year, the three major indexes dipped into bear territory. Some of the world's strongest companies saw their share prices plummet. And today, investors' biggest question is this: When will the next bull market shake up stocks and lift them out of the doldrums? No one has the answer to this.
But here's some good news. We do know a bull market is on the way. That's because market downturns don't last forever. In fact, history shows us bull markets always follow bear markets. And the average length of a bear market is about a year. All of this means it's a great idea to start preparing right now for better days. How should we do that? Read on.
A diversified portfolio
First, it's important to note that your investing strategy doesn't have to greatly change when the market shifts from bear to bull. Ideally, you should put into place a diversified stocks portfolio that will serve you well over the long term.
This means a mix of safe bets, like dividend stocks, with players that carry a bit more risk -- and opportunity for upside -- like growth stocks. You also can seek safety through certain healthcare players and growth through companies in technology, for example.
The market will have its ups and downs, and this sort of portfolio can help you limit the declines during the bad times and maximize gains during the good times. If you're a cautious investor, you'll want to invest more heavily in the safer stocks. If you're an aggressive investor, you'll favor the riskier, high-growth options.
Now, let's turn to the idea of preparing for the next bull market. Today's difficult market has crushed the valuations of many top companies -- companies that still have bright long-term prospects. And these are the players to add to your portfolio now while they're trading for a bargain. They may be among the first to take off once the general market improves.
Amazon and Home Depot
A great example is Amazon (AMZN -1.65%). Higher inflation has increased Amazon's costs and hurt its customers' buying power. As a result, Amazon's earnings, stock performance, and valuation have declined. The stock today is trading at its cheapest in relation to sales since 2015.
AMZN PS Ratio data by YCharts.
But Amazon's future still looks bright thanks to its leadership in the two high-growth industries of e-commerce and cloud computing. In fact, its cloud business still is growing in the double digits.
Another possibility is Home Depot (HD -0.31%). Today's economic environment hasn't hurt earnings at the world's biggest home improvement retailer. The company has continued to increase revenue and profit. And it's still seeing strong demand from its two types of customers: the do-it-yourself crowd and professionals. Still, the stock price suffered last year.
You'll find other similar stories across industries -- from healthcare to technology. It's not a good idea to buy a stock just because it's declined, though. It's key to consider its long-term revenue opportunities, leadership in its industry, and its position in relation to rivals.
A company's financial situation
And it's important to look at a company's financial situation. Does the company have a lot of debt? If so, how easily can it pay off that debt? Are cash levels high enough to support business development and growth?
OK, so now you're set to add some of these great stocks to your portfolio. But what if you buy them and then they decline further? After all, we don't know the exact timing of the future bull market or the recovery of each stock.
That's OK. It's impossible to time the market and get a stock for its very lowest. But if you invest for at least five years, and you've chosen quality companies, you're likely to win in the long run. And the next bull market could play a major role in that victory. That's why now is the perfect time to start preparing for it.
