Equity markets have been southbound for a while now, and last month, the S&P 500 officially dropped below bear market territory as defined by a 20% or more decline from its most recent high. Even the most battle-tested investors can panic in situations like these; it's only human to do so.
That's especially the case considering the state of the economy. Some analysts have predicted that a recession could be on its way, and with inflation at 40-year highs, things could get even worse for the stock market. With that said, there are important missteps investors should avoid in a bear market. Here are just two examples.
Mistake #1: Constantly checking your portfolio
When stocks are struggling, it can be tempting for investors to constantly check how the performance of their portfolios stacks up against that of the broader market -- or if, by any chance, they are managing to defy the sell-off. The temptation is understandable but a bit unwise. In a bear market, most investors will be in the red. But until one presses the sell button, losses remain unrealized.
Peeking into the performance of the stocks you own regularly can increase anxiety and provoke panic-selling. Of course, that would be a mistake for investors with a long-term mindset. The market will recover -- history tells us that it always does. And provided the stocks you own are those of quality companies, they will bounce back too. Staying the course is generally the correct thing to do.
Not being obsessed with how your portfolio performs helps you do just that.
Mistake #2: Avoiding buying stocks
For opportunistic investors, downturns are practically the stock market equivalents of a "sale" sign on the window of a retail store. Sell-offs don't discriminate. Even robust companies find themselves in the red, creating the perfect opportunity for you to scoop them up on the dip.
Of course, investing best practices still apply. It's essential only to invest money that you can afford to lose, particularly if the downturn in question is accompanied by economic troubles (as we are currently experiencing).
Furthermore, just because a stock is down doesn't mean it's worth buying at its current levels. Doing your due diligence before pressing the buy button is always critical. But if you play your cards right, bear markets can help you increase your returns in the long run.
With that in mind, here's one beaten-down stock worth buying now: Moderna (NASDAQ: MRNA). The biotech is down big this year, but it is well-positioned to rebound eventually. Here's why.
Down but not out
One reason Moderna is down recently -- besides the broader sell-off -- is that its prospects seem uncertain to some investors. What will the COVID-19 vaccine market look like after this year? Will Moderna continue to generate strong sales from its sole product on the market in 2023 and beyond?
These are reasonable questions, but Moderna seems to have the means to bounce back from a potential drop in sales of its coronavirus vaccine after this year. The company has a pipeline full of promising programs and enough funds to bring at least a couple of brand new products to market (without resorting to dilutive financing) -- two key things biotech companies need to be successful.
Moderna is running several non-coronavirus-related phase 3 clinical trials, including a potential vaccine against the flu and two others against respiratory syncytial virus (RSV) vaccine and the cytomegalovirus, neither of which has an existing, approved vaccine. Additionally, it has plenty more programs in phase 2 or phase 1 testing.
The biotech ended the first quarter with $19.3 billion in cash and cash equivalents, more than double the $8.3 billion it had as of the end of Q1 of the previous fiscal year. Moderna's shares have lost 35% of their value this year. But I believe patience will be rewarded for those who get in now.
Play the long game
Bear markets aren't fun, but investors can make the best of them by avoiding the unnecessary stress of constantly checking stocks and taking advantage of the opportunity to buy great stocks like Moderna or many other companies that fell along with the rest of the market. Trading may be a short-term game, but investing is a long-term one. Focusing on that can help investors get through these challenging times.
