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

Recently, he has been accumulating shares of Invesco QQQ Trust
QQQ,
+0.36%
because there was a significant selloff. “In the first week of July, the QQQ and SPY
SPY,
-0.24%
were good buys,” he says. He stops trading, he adds, when “the casino or table is too hot.”  

When will Kornstein sell QQQ? “When taking a trading or investing position, you must know when you’re going to sell before you even buy it. Based on technical analysis, I determined that $350 or above is my selling point for QQQ.” (Note: His target price could change in the future depending on variable market conditions.) 

Buy at the 52-week low

Kornstein uses a simple stock strategy that has worked for decades. “I find an established company whose stock has dropped to its 52-week low and is making a U-turn. This means the stock is recovering. This is a classic, dependable trade. When buying at the 52-week low, you have reduced your risk.” 

One indication that a stock has recovered is when the 20-day moving average crosses over the 30-day moving average (i.e., the simple moving average crossover strategy). According to Kornstein, that is a sign the stock may have bounced off its 52-week low and could be headed higher. 

Kornstein describes the type of companies he likes to scoop up at the lows: “The goal is to buy well-established companies that make tangible products, not intellectual properties. I have positions in Boeing
BA,
+2.22%,
Lockheed Martin
LMT,
-1.88%,
and Schlumberger
SLB,
-2.97%.
These are companies that have been around for a long time that sell real products. Nvidia
NVDA,
+1.37%
and Advanced Micro Systems
AMD,
+1.39%
are other companies that fit this criterion.”  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 the 52-week high 

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

Kornstein cautions that the strategy of buying and holding forever is not dependable. “General Motors’ bankruptcy is a good example,” he says. “Always know when to get out of a position.”

Assume you’re wrong

Another Kornstein rule: After buying a stock, he always assumes that he is wrong about a position. That is one of the ways he reduces risk. Says Kornstein: “I accumulate a position by starting small with 10- or 25 shares. If it goes against me, I stop accumulating and wait. Everyone thinks that when they buy they will be right and make lots 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. Then it’s hard for these investors to sell their losers.

Start small

Even though Kornstein has substantial positions, he always begins with small positions. “I might buy 10 shares at the end of the day. I put my money on the table. If I’m right, I will continue adding to the position. If wrong, I will sit on the position and see what happens. I never ever take large positions at one time. You scale or ramp in over time.” The key, he says, is to calculate in advance how many shares to buy.

When a stock goes against you

Buying at the 52-week low is a reasonable strategy, but doesn’t always work. For example, five years ago Kornstein bought Exxon Mobil
XOM,
-2.00%
shares at a 52-week low — but it went to a 100-week low, and then to a 25-year low. “It took me five years to get out of that position and sell with a profit.” 

The lesson: “I’m happy to make singles and doubles on my purchases,” he says. “I don’t aim to make a home run. It takes patience to be a successful trader or investor. If you aren’t patient, you should not be trading.” 

How long will this bear market last? 

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

Yet Kornstein doesn’t care if it’s a bull- or bear market. “I find opportunities in this market, and that does not include shorting. I have found that shorting (i.e., betting that a stock or index will go down) doesn’t work well.”

Kornstein advises investors and traders to follow the facts. “I’ve spent 40 years looking and discovering the facts, and it’s hard work,” he says. “Stick with buying individual stocks or ETFs such as SPY and QQQ. They are very straightforward products.” 

He adds: “Find a strategy that works for you and keep using it. You may start with buying one share of a stock in a company that pays dividends and is at or near their 52-week low. This is preferable to 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 bull -and bear market investing strategies. 

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