Why Every Canadian Investor Should Embrace Bear Market Volatility. Really

Do you fear bear markets? Here’s why you shouldn’t!

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When it comes to the stock market, most investors seem to want to participate in bull markets. For those that aren’t familiar, that’s the term used to describe the stock market when it trends upwards. However, in reality, investors should be waiting for opportunities to invest in bear markets — this is when the market trends downward. In this article, I’ll discuss why bear markets should be embraced more by investors and what kinds of stocks you could target during those times.

If you’re a more conservative investor

As a conservative investor, you may not want to dive into more risky options during bear markets. However, you can still take advantage of the opportunities that present themselves by investing in dividend stocks. By investing in dividend stocks during a bear market, investors can buy shares when dividend yields are temporarily at elevated levels. This could help you build a source of passive income much faster because the bear market gives you more bang for your buck.

One dividend stock you could target during a bear market would be Canadian National Railway (TSX:CNR). This is one of the largest railway companies in North America, operating nearly 33,000 km of track. Canadian National Railway is one of the most recognizable companies in Canada, operating lines from British Columbia to Nova Scotia.

Savvy investors will know this company for being listed among the Canadian Dividend Aristocrats. That’s a prestigious group of dividend stocks that have managed to increase their distributions for at least five consecutive years.

What’s impressive about Canadian National Railway is that it smashes that minimum dividend-growth requirement out of the park. This company is one of 11 TSX-listed stocks to claim a dividend growth streak of 26 years or longer. In addition, Canadian National Railway’s dividend has been raised at a compound annual growth rate of about 16% over that period. If you’re looking for a top dividend stock to invest in during a bear market, look no further than Canadian National Railway.

Are you looking for a home run opportunity?

For investors that have their eyes on generating massive wealth, you should be targeting growth stocks during bear markets. It can be very difficult to invest in these companies during those times, because of the increased volatility, however the payoffs could be massive.

Take Constellation Software (TSX:CSU) for example. For those who are unfamiliar with this company, know that it’s a tech conglomerate. Constellation Software acquires vertical market businesses and provides the resources to help turn those acquisitions into solid business units.

At the end of 2021, this stock traded above $2,340. However, because of the market downturn in 2022, the stock ended up falling to about $1,800. That’s a $500 drop in its value, which could’ve been a very attractive discount for prospective investors. Since then, the stock has gained more than 55% and now trades at all-time highs.

With Constellation Software’s strong history in the back of my mind, I’m very glad I took advantage of the discount that this company offered investors at the start of last year. Like-minded investors should be looking for opportunities to do the same.

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.

Fool contributor Jed Lloren has positions in Constellation Software. The Motley Fool recommends Canadian National Railway and Constellation Software. The Motley Fool has a disclosure policy.

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