Volatility in global financial markets triggered by the conflict in Ukraine has investors concerned about a potential U.S. recession in 2022. The SPDR S&P 500 ETF Trust (NYSE:SPY) is down more than 10% year-to-date, while WTI crude oil prices have risen to 13-year highs.
In volatile times like these, it's understandable for investors to be concerned about what will happen if the market actually crashes like it did in early 2022 or late 2008. While it may seem like fortunes are made during times of extended bull markets, it's often the case that a long-term investor's actions during the worst periods of the stock market are what set the foundation for future wealth.
Related Link: Why Bank Stocks Are Getting Crushed Since Ukraine Conflict Began
Investing In A Recession: Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, famously said "the time to buy is when there's blood in the streets."
Warren Buffett, billionaire investing legend and CEO of Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B), has his own famous version of the Rothschild quote.
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful," Buffett wrote in his 1986 Berkshire shareholder letter.
Buffett reportedly made more than $10 billion investing aggressively during the financial crisis and the 2011 European debt crisis. Buffett invested in blue chip companies like Mars, Goldman Sachs Group Inc (NYSE:GS), Bank of America Corp (NYSE:BAC) and Dow Inc (NYSE:DOW).
Ackman's COVID Trade: Bill Ackman, the billionaire CEO of Pershing Square Capital Management, took things one step further during the COVID-19 sell-off in early 2020. Ackman hedged against the possibility the pandemic would trigger a market crash, purchasing $27 million in securities as a hedge against a sharp drop in the corporate bond market. It may seem like a large bet, but it's actually a very modest position for Pershing, which was managing more than $13 billion in assets in 2020.
When the market crashed in March, Ackman cashed out of his hedge for $2.6 billion, more than 100 times his investment. He then pivoted to Buffett mode, scooping up cheap shares of Hilton Hotels Corporation (NYSE:HLT), Lowe`s Companies Inc (NYSE:LOW) and Restaurant Brands International Inc (NYSE:QSR). By the end of the year, Ackman had turned a $3.85-billion profit by playing the drop and the recovery.
Contrarian Investing: Benjamin Graham, the father of value investing and early mentor of Buffett, once described how to successfully navigate market cycles by taking advantage of excessive pessimism.
“The intelligent investor is a realist who sells to optimists and buys from pessimists," Graham said.
Famous American businessman, investor, and philanthropist Shelby Cullom Davis said it's difficult to truly appreciate bear market opportunities in real time.
“You make most of your money in a bear market, you just don’t realize it at the time," Davis said.
Benzinga's Take: The one common trait that all successful bear market investors have is that they buy high-quality companies — not necessarily the stocks that drop the most — during the crash.
The S&P 500 has always eventually recovered from every recession, but the same cannot be said for many lower-quality companies that do not have the cash flow and balance sheet strength to survive and make it through to the next economic expansion cycle.
