Opinion: “I see buying opportunities.” How this stock trader with 40 years of experience makes money in a bear market

Howard Kornstein, a professional trader with over 40 years of experience in stocks, options and futures, has developed and refined his strategies while dealing with every imaginable market environment. It has little patience for those who claim they cannot make money trading even during the current bear market.

“This bear market is soft,” says Kornstein. “I see buying opportunities. Lots of people took money out of the market a few weeks ago as the market went down. Guess what? The market will go up, as it always does.

Recently, he accumulated shares of Invesco QQQ Trust QQQ,
+1.81%
because there was a major sale. “In the first week of July, the QQQ and SPY SPY,
+1.91%
were good buys,” he says. He stops trading, he adds, when “the casino or the table is too hot”.

When will Kornstein sell QQQ? “When you take a trading or investing position, you need to know when you are going to sell before you even buy it. Based on technical analysis, I have determined that $350 or more is my selling point for QQQ. (Note: its target price may change in the future depending on varying market conditions.)

Buy at the 52 week low

Kornstein uses a simple stock market strategy that has worked for decades. “I find an established company whose stock has fallen to its lowest level in 52 weeks and is turning around. This means the stock is recovering. It is a classic and reliable job. By buying at the 52-week low, you have reduced your risk.

An indication that a stock has rallied is when the 20-day moving average crosses the 30-day moving average (i.e. the simple moving average crossover strategy). According to Kornstein, this is a sign that the stock may have rebounded from its 52-week low and could be heading higher.

Kornstein describes the type of companies he likes to scoop: “The goal is to buy well-established companies that make tangible products, not intellectual properties. I have positions at Boeing BA,
+0.40%,
Lockheed Martin LMT,
-0.48%,
and Schlumberger SLB,
+3.10%.
These are companies that have been around for a long time and sell real products. NVIDIA NVDA,
+2.54%
and Advanced Micro Systems AMD,
+3.19%
are there any other companies that fit this criteria. Kornstein adds that he favors dividend-paying stocks, a strategy espoused by veteran investor Warren Kaplan — the subject of a recent MarketWatch feature.

Sell ​​at 52 week high

When a stock hits a 52-week high, Kornstein sells. “I know ahead when to sell,” he says, “and one rule I obey is to sell at a 52-week high. When I take a position, I always identify my exit price in advance.

Kornstein warns that the strategy of buy and hold forever is unreliable. “The General Motors bankruptcy is a good example of that,” he says. “Always know when to get out of a position.”

Suppose you are wrong

Another rule of Kornstein: after buying a stock, he always assumes that he is wrong about a position. This is one of the ways it reduces risk. Kornstein says, “I build a position by starting small with 10 or 25 stocks. If it goes against me, I stop accumulating and I wait. Everyone thinks that when they buy, they will be right and make a lot of money. But when it goes against them, many investors refuse to acknowledge this fact. They believe the stock will come back and are shocked when it doesn’t.

Kornstein adds that many investors get too emotionally attached to their stocks. It is then difficult for these investors to sell their losers.

start small

Even though Kornstein holds important positions, he always starts with small positions. “I could buy 10 shares at the end of the day. I put my money on the table. If I’m right, I’ll keep adding to the position. If it’s wrong, I’ll sit on the position and see what happens. I never take important positions at the same time. You evolve or progress over time. The key, he says, is to calculate in advance how many shares to buy.

When an action goes against you

Buying the 52-week low is a reasonable strategy, but it doesn’t always work. For example, five years ago Kornstein bought Exxon Mobil XOM,
+1.68%
shares at a 52-week low – but went to a 100-week low, then to a 25-year low. “It took me five years to get out of that position and sell at a profit.”

The lesson: “I’m happy to single and double on my purchases,” he says. “I’m not aiming to hit a home run. It takes patience to be a successful trader or investor. If you are not patient, you should not negotiate.

How long will this bear market last?

“The bear market will continue at least until December. Then we will see what happens,” says Kornstein. What makes him so convinced? “The bear market started when the Fed raised rates of interest by three-quarters of a point. That was the start,” he says. “We know that in July and October they will raise rates because they said they would.”

Yet Kornstein doesn’t care whether it’s a bull or bear market. “I find opportunities in this market, and that doesn’t include short selling. I found this short [betting that a stock or index will go down] does not work well.

Kornstein advises investors and traders to follow the facts. “I’ve spent 40 years researching and finding out the facts, and it’s hard work,” he says. “Stay away from buying individual stocks or ETFs such as SPY and QQQ. These are very simple products.

He adds, “Find a strategy that works for you and keep using it. You can start by buying a stock of a dividend-paying company that is at or near its 52-week low. It’s better than trying to find the next pot of gold.

Michael Sincere (michaelsincere.com) is the author of “Understanding Options” and “Understanding Stocks”. His latest book, “How to Profit in the Stock Market” (McGraw Hill, 2022), explores investment strategies in bull and bear markets.

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