How to Make $1 Million in the Next Bear Market

Stock markets could be in trouble this year, but it’s important not to panic. Here’s how to profit with stocks like Shopify (TSX:SHOP)(NYSE:SHOP).

| More on:
funds, money, nest egg

Image source: Getty Images

The volatility of the markets can make even the most seasoned investor nervous. But if you’re prepared, you can make the most of it. In fact, if you position yourself correctly, you can make a huge profit during the next bear market.

Want to make $1 million if markets see a correction in 2021? Here’s how.

Don’t be scared to play it safe

It takes money to make money. The more money you have, the more money you can make. That’s why you shouldn’t be scared to play it safe every once in a while. Now, I’m not talking about pulling your money out of the market completely, but rather choosing strategic stocks that can weather a downturn.

Consider a stock like Hydro One (TSX:H). Due to its rate-regulated utility model, shares barely move during a plunge. That’s because it has extreme cash flow visibility. Power demand doesn’t change much when the economy shifts, and pricing is dictated by regulators years in advance.

The easiest way to make money is to not lose it. A penny saved is a penny earned. Stocks like Hydro One can make sure you survive the next market crash intact, with enough capital to take big bets on high-upside stocks like the ones below.

Buy these stocks if the market crashes

If you want to make as much money as possible, as fast as possible, you need to stick with software stocks.

“Software stocks have much less friction to growth,” I recently explained. “To acquire a customer, it just needs to send a download link. Software is often purchased on a subscription basis, so the company gets paid many times over for delivering the same product. Growth costs almost nothing, with customer acquisition being near-instantaneous.”

The only problem is that everyone knows these stocks are amazing, pushing valuation multiples up to ridiculous levels. Shopify (TSX:SHOP)(NYSE:SHOP), which runs one of the largest e-commerce platforms, is valued at 54 times sales. Even Constellation Software (TSX:CSU), which owns one of the largest niche software portfolios on the planet, trades at seven times sales.

Of course, both of these stocks could have turned a few thousand dollars into $1 million or more if you got into them early, but these days, shares are pricey enough to scare away most investors. This is where you can use a market crash to your advantage.

How to make $1 million

High-upside software businesses nearly never go on sale. During a market-wide selloff, however, you could get a once-in-a-decade opportunity to cash in at bargain levels. The important thing is to have enough cash to take advantage. Investing in safe stocks like Hydro One ensures that you’re not wiped out along the way.

When valuation multiples collapse, be prepared with a dozen or more software stocks worth targeting. Shopify and Constellation Software are great starting points, but you don’t want to get caught flatfooted.

In fact, if you want to make as much money as possible, look for the next Shopify or Constellation Software. The biggest profits are always made in the early days of growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Constellation Software, Shopify, and Shopify. Fool contributor Ryan Vanzo has no position in any stocks mentioned.

More on Dividend Stocks

Dividend Stocks

Here’s the Next Dividend Stock I’m Going to Buy

As the fear of recession increases, panic increases. At times like these, a dividend stock can mitigate your portfolio's downside.

Read more »

worry concern
Dividend Stocks

Housing Market in May 2022: Buyers and Sellers Are in a Bind

Many homebuyers are re-evaluating their options due to rising inflation and mortgage rates, but sellers hope they would change their…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

3 Low-Yield Stocks to Buy for Decent Growth Potential

A low yield doesn't always mean that the company is a miser with its payouts. Sometimes, it's the result of…

Read more »

edit Safety First illustration
Dividend Stocks

3 of the Safest High-Yield Dividend Stocks in Canada

Not all high-yield stocks are inherently dangerous, but it’s still a good idea to play it safe and choose companies…

Read more »

A stock price graph showing growth over time
Dividend Stocks

RRSP Investors: 2 Oversold TSX Stocks to Buy for Dividend Growth

The market pullback is giving RRSP investors a chance to buy some top TSX dividend stocks at cheap prices.

Read more »

stock research, analyze data
Dividend Stocks

Buy the Dip: 2 Top TSX Dividend Stocks on Sale

These top TSX dividend stocks look cheap to buy today for a portfolio focused on passive income.

Read more »

grow money, wealth build
Dividend Stocks

2 Top TSX Growth Stocks That Also Pay Investors Tasty Dividends

Growth stocks on the TSX such as goeasy and Brookfield Renewable also provide investors with tasty dividend yields.

Read more »

money cash dividends
Dividend Stocks

Dividend Stocks: The #1 Way to Earn Passive Income

Earning passive income from dividend stocks could be enjoyable. Here are a few tips to simplify your process.

Read more »