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How to safeguard your portfolio in a recession-driven bear market

Warnings of a global recession are louder today than ever since the 2008 financial crisis. While these indications aren’t clear-cut evidence of a potential market crash, it’s wise not to ignore the prospects of a recession-induced bear market.

There are still many people out there who have not recovered from last decade’s recession, so it’s quite natural to get a panic attack. However, a recession also holds some amazing buy opportunities, if we are well prepared for it.

Photo by Aditya Vyas on Unsplash

Warren Buffett is probably the best example of a recession opportunist. Most of his investments in Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS) were made during the 2008 recession period and are currently trading way above the price he purchased them. His philosophy of providing liquidity during the financial crisis turned beneficial to the market as well as himself.

Having some cash reserve at hand is the first step. If a recession hits, prospective stocks may be bought at a cheap price with a long-term growth window.

Having a stake in Buffett’s Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) is another interesting alternative as more than half of Berkshire’s holding are in recession resilient stocks. Separately, with a massive cash chest of over $122 billion, the company is likely to add to its profitable investments if a recession hits.

READ: Recession panic: Why investors need to stay cautious heading into 2020

If you don’t wish that your money stay idle, you could choose to invest in industries that are unlikely to be affected by a recession.  The auto parts industry could be a great option, as it has historically performed well during such bear markets. The logic is simple – when people don’t have enough cash liquidity, they avoid buying new cars. And the old cars often need constant repairs, which keeps the industry thriving during recessions.

Two stocks that you could consider include AutoZone (NYSE: AZO) and O’Reilly Automotive (NASDAQ: ORLY), both of which have been performing relatively well over the past few years.

Though the pharma segment is not entirely recession-proof, companies with exposure to animal health may be good options. Zoetis (NYSE: ZTS) and Merck (NYSE: MRK) could provide ample cushioning to your portfolio in the event of a market crash.

READ: Major IPOs expected in late-2019 or 2020

It’s not entirely risky if you invest in technology either. The trick is in picking strong companies that have a dominant market share status and strong cash reserves. Look out for companies such as Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) with a strong presence in digital advertising. Historically, even as advertising has suffered during recession periods, digital advertising has fared well and should help these firms stay buoyant.

As we have proved time and again that we are terrible at predicting the market, it’s safe to stay prepared if you wish to take advantage of a bleeding market.

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Tags: economy
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