Today we are going to discuss several strategies for navigating a down market. Since 1945 the S and P 500 has had 84 5%-10% declines, 29 10%-20% declines, 9 20%-40% declines, and 3 declines ranging 40% or more.  Timing a pullback is foolish so I neither recommend running from a decline or trying to short stock prior to the potential decline. So what can you do to take advantage of a market pullback?

1. In preparation for a market pullback, keep cash on the sidelines.  What does that mean? That means making sure you have enough liquidity or cash at the ready to deploy in the event of a Pullback.  I personally keep a fair amount of money in a money market account with my broker to enable interference free deployment.  I have come to find that there are always problems when linking banks to new brokerage accounts.  They make you confirm micro deposits in many brokerages which can take days. Make sure all of this is done ahead of time so you can invest free of any impediment.
2. Whatever happens, do not panic.  The price of stock is reducing during a market pullback or recession because there is panic on the streets and people are selling.  Do not sell you current positions.  Do not short positions. Hold on to your current positions through the panic and wait for them to correct.  It could take several years in a recession but you will be glad you did.  I lived through 2008 and saw a lot of people lose everything.  If it taught me one thing it was that there is a light at the end of the tunnel and the market will always come back given enough time.  Wait it out.  Do not sell.  
3. This is along the same lines of number two but do the opposite of everyone else.  If everyone else is running from the markets, you run towards.  I rarely go along with the rest of the pack with regard to investing.  In fact I will typically seek out the opposite positions taken by the pack since that is where the value lies. I am not saying you should seek out losing stocks. what I am saying is that if there is a cyclical downturn in a stock but the fundamentals are strong, you should at least consider purchasing that stock. An even safer approach is to seek out a cyclical decline in the entire index, buy the index.
4. Do whatever you can to avoid looking at your account value during a decline.  It will only cause anxiety. Instead, consider what companies are cheap that have strong fundamentals and think about the money you will make on the other end of the pullback, if you purchase those shares at a discount.    
5. This is an offshoot of my last strategy but this is all about psychology.  One must resist their natural urge to sell in a market decline.  The fear center in ones brain is going to be working in over drive to try and deter you from taking a risk.  We are naturally risk averse and yes, the market is risky especially during periods of immense volatility. You really do not know when the market is going to come back up.  Logic must dictate your actions in this situation.  One may want to tell oneself that over the last 100 plus years the US stock market has come back from every pull back or recession and posted remarkable gains, overtime.  In February of 1915 the Dow was at around 1581 and it’s now around 38k.  Yes, we are in a market where entropy reigns supreme but you can rely on the fact that historically the market has come back from all recessions and posted remarkable gains and made a lot of people rich over time. Time is the great equalizer. If you have time in the market, you can make a fortune. You just need to wait out the negative to enjoy the positive.
6. Dollar cost averaging is your friend during a decline.  Once again, do not try and time the market.  It is rare that anyone can buy at the bottom.  That being said, I recommend taking a small position at a 10%-15% pullback on a stock or fund you like, and dollar cost average over the next several months/years depending upon conditions.  I will get into specific buying strategies during market declines in another post.  During Covid, the market pulled back very quickly and went back up very quickly.  I was able to sense that the pullback would be short lived and cause only by the fact that we were in a pandemic. knowing the pullback would be short lived, and having a lot of cash on the sidelines, I was able to get in at a good price over a short period of time during Covid and make a lot of money. My experience, living through 2008, taught me this and I was thankfully prepared with a lot of cash reserves at the time.   There have been pullbacks that have last several years.  Be prepared to stay in there for a while if the market pullback factors are more economically motivated like the collapse of the housing market in 2008.  Dollar cost averaging into the 2008 Great Recession would have taken a lot of time, skill, and wherewithal because of the length of the pullback and the grim outlook – the banks going under.  You need to stay committed to the end goal. At the end of the day, the government will not allow the entire US financial system to fail. They will always bail it out, if necessary just like in the crisis of 2008.  Wait that out and don’t flinch. 200 years of history teaches us that the US stock market is bulletproof over the long term.   
7. In conclusion, I would just like to emphasis that getting into a stock, fund, etf, etc, at the right price on the “buy side” is more important than the sale.  You want to position yourself on the front end to make as much money as possible on the back end by getting into an equity for cheap.  Value is very important when buying stock.  It takes a lot of the stress off of the trade. This is especially key for those buy and hold investors or those investors who don’t reposition their portfolios frequently.  If you plan to invest for the long term, and hold your equities, I recommend putting all of the stress on the buy to reduce stress on the sale. Dollar cost average in a good economy, buy vigorously during a big downturn.