5 Best Investment Strategies For A Volatile Market

Man Hanging On In Risky Financial Market

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One of the most famous investors of all time is Peter Lynch. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index, making it the best-performing mutual fund in the world. Along with another famous investor, Warren Buffett, both have some rich investment quotes, and I will place a few from each throughout this article.

Market downturns can be overwhelming and scary as investors watch the price of their holdings fall; it can be tempting to sell or hit pause. Peter Lynch said, “The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed…People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences.” We are seeing a lot of panic in the markets that revolve around fears of:

While these issues may seem daunting, and a Fed rate increase may be inevitable, there is no need to panic. These problems and concerns are not guarantees of an economic downturn, a recession, or an extended bear market. Markets move up and down based on investor sentiment. Just a few weeks ago, on January 4, 2022, the S&P 500 and Dow hit all-time highs.

S&P 500 Hit All-Time High in January 2022

S&P 500 Hits All-Time High

S&P 500 Hits All-Time High

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Stock market volatility is largely a cause of uncertainty and is often characterized by extreme price fluctuations and heavy trading volume. The matters mentioned above create increased uncertainty and a disproportionate number of sellers. However, many of these issues can lead to market rotation. Sector rotation refers to taking money from one sector of the market and moving it to another in anticipation of demand for stocks in that sector. Inflation and rising rates often can lead to a sell-off in overvalued growth stocks and an investment in stocks that fall in the energy or finance sector. Notably, the markets can go up during rate hikes, and the economy can grow.

Many companies in sectors such as energy, finance, material, and REITs, have strong earnings results during periods of inflation. Likewise, suppose your concern is the market will continue to be volatile for an extended period. In that case, it pays to be diversified and own some of our top consumer staple stocks (food, beverages, and personal hygiene) or top utility stocks (electric, gas, water, communication). It also helps to get paid while waiting for the dust to settle. Top Quant Dividend Stocks with safe dividends offer a buffer to the downside. In either scenario, the best strategy is to invest in companies where the fundamentals are strong; stocks characterized with sustainable growth, solid valuation frameworks, and robust profits. A correction or bear market can pose an opportunity to buy something you like at a fire-sale discount, which is why we are providing five tips for navigating a volatile market. As Warren Buffett has said, “If I see a sale in my favorite store, I go and buy some more of the stuff I like.” In line with the principles of investing legends, please find my best suggestions for managing your portfolio in a volatile market.

5 Tips For Investing During a Turbulent Market

1. Stay Invested – Think Long Term

“Bargains are the holy grail of the true stock picker. We see the latest correction not as a disaster, but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time,” said Peter Lynch. Market volatility is usually temporary, and it typically pays to keep your money invested. The suspense of watching investments lose value, whether you’re new or old to trading, is terrifying. Pulling that money out of the market is a risk that requires careful consideration because if you pull out, you risk locking in losses. If you purchase at a higher price point and sell after a price drop, you’re selling for less than you paid. If the price rebounds, you haven’t lost anything. The reason it’s crucial to stay invested is because traditionally, the best days in the market follow the worst days, and it’s impossible to time the market with precision and accuracy. It’s essential to avoid the typical investor pitfall of capitulating during volatile times. “Investors crave control and may be tempted to act in a way that we know is likely to hurt their retirement strategy by selling out of the market after a significant loss, locking in those losses, but with every intention of reentering the market when it feels safer, whenever that may be,” said Katherine Roy, J.P. Morgan Chief Retirement Strategist.

J.P. Morgan’s Guide to Retirement (GTR) highlights “The impact of being out of the market” and how behavior driven by loss aversion and trying to market time is one of the biggest detriments to portfolio returns. For perspective, the image below showcased how from January 2, 2001, through December 31, 2020, six of the seven best trading days occurred after the worst days.

J.P. Morgan Impact of Being Out of the Market

J.P. Morgan Impact of Being Out of the Market

J.P. Morgan

Exiting the market because of fear, in an effort to minimize loss may result in bigger losses or missing the best days of trading in volatile markets. Stay invested and think long-term.

2. Put Your Money to Work Consistently (Dollar-Cost-Averaging) Rather Than Sitting in Cash

“If you invest $1,000 in a stock, all you can lose is $1,000, but you stand to gain $10,000 or even $50,000 over time if you’re patient,” said Peter Lynch. For a long-term investor, if you’re fortunate to have cash on the sidelines, market volatility presents great potential to buy securities at better valuations. Downturns are an effective way to improve the quality of your portfolio by increasing holdings to high(er) quality companies that may have been expensive, overstretched, or outside of your price point. Looking at the last correction which took place in March of 2020 during the peak of COVID restrictions and lockdowns, you can see in the chart below that the market has more than doubled from its panic drawdown. With volatility, these companies may now be more attractive again and become undervalued with the opportunity to purchase and capitalize on future growth.

50-Years of the S&P 500: Buy Low, Sell High, Don’t Panic!

50 Years of the S&P 500: Buy Low, Sell High, Don

50 Years of the S&P 500: Buy Low, Sell High, Don’t Panic!


Over the long term, one of the best investment strategies to maximize returns and reduce risk is through dollar-cost averaging (DCA). DCA is the practice of systematically investing your cash over regular intervals, regardless of stock price. DCA is one of the most effective strategies for investors looking to smooth out the natural dips and rips that occur in markets. DCA also helps to avoid the mistake of trying to time the markets. Regarding market timing, Charles Schwab research shows “that the cost of waiting for the perfect moment to invest typically exceeds the benefit of even perfect timing. And because timing the market perfectly is nearly impossible, the best strategy for most of us is not to try to market-time at all”. Holding cash is essential for emergency funds or if you are about to retire or saving for a house. It is important to have money on the side if you need cash in the next few years or annual household operating costs. However, large amounts of capital held in cash generally produce lower returns.

If you’re holding cash as a means of loss aversion, you’re losing the opportunity for growth. Sitting on cash, especially in the current inflationary environment, is like throwing money away or lighting it on fire. If $100 that sat in cash last year is only worth $93 today given the 7% inflation, taking that forward, even if inflation moderates back to the Fed’s target of 2%, that moderation won’t happen overnight; it will most likely settle around the 3-4% range. Even then, today’s $93 will be worth less than $90 over the next year because of the impact of inflation and loss of purchasing power associated with purely sitting in cash. “Today, people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value”, Warren Buffett.

3. Know What You Own

In the words of Peter Lynch, “Know what you own, and know why you own it.” This advice is straightforward and a no-brainer. If you cannot understand what a company does, why invest? Additionally, investing in friends’ projects or the latest meme stock because it’s trending may not be the best opportunity for you.

Fortunately, Seeking Alpha’s research, news, and quant grades can help you immediately understand your investments. Notably, the quant ratings and factor grades help to provide an instant characterization of your stock, ETF, or REIT’s strength compared to its peer group.

Ratings and Factor Grades Provide An Instant Score Of Strength or Weakness

Ratings and Factor Grades Provide An Instant Score of Strength or Weakness

Ratings and Factor Grades Provide An Instant Score of Strength or Weakness

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The internet and stock market are full of “tips” for getting rich quickly. Putting your money into investments simply out of fear of missing out (FOMO) without ever reading the fine print, or failing to understand the investment, can set you up for a rollercoaster ride. Stay true to your investment strategies and risk tolerance, staying the course to achieving your goals. Pick stocks that have strong fundamentals and will benefit you in the long run. A deep dive on a stock’s valuation framework is just one click away.

Valuation Grade and Underlying Metrics

Valuation Grade and Underlying Metrics

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4. Focus on Good Companies And Diversify

As the markets pull back, you may find success in identifying stocks with fair valuations that are at great price points and have taken a hit during market volatility. These securities can easily be found in our Top Stocks By Quant screen. Seeking Alpha Contributor and Strategist, Lawrence Fuller, believes a Midterm Correction Is Par For The Course. He states, “Provided there is no recession, this correction is presenting opportunities to invest in quality and value.” Paradoxically, even if you hold an opinion similar to Mike Wilson from Morgan Stanley, the market’s biggest bear according to CNBC, who suggests investors are dangerously downplaying a collision between a tightening Fed and slowing growth. Largely, Mike Wilson believes the market could decline another 10% and that investors should double down on defensive stocks. As I mentioned previously, it pays to be diversified and own some of our top consumer staple stocks (food, beverages and personal hygiene) or top utility stocks (electric, gas, water, communication). If you believe inflation is a key concern, then you would want to inflation-proof your portfolio with our top energy stocks or top financial stocks. Again, it also helps to get paid while you wait for the dust to settle. Top Quant Dividend Stocks with safe dividends offer a buffer to the downside.

The key to long-term investing is finding high-quality companies’ stocks that are characterized with sustainable growth, solid valuation frameworks, robust profits, positive earnings revisions, and strong momentum compared to peers.

As Buffett says, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” which is why I have included my Top 10 Stocks to buy in 2022, which highlights ten high-quality companies that should do well in a correction or stock market rally.

Ten Stocks With Great Fundamentals for 2022

It is a great start to seek out relatively priced companies able to cover their debt burden and cost of capital that isn’t overleveraged relative to their industry. You want companies with a strong track record of earnings growth and high earnings quality. In rising interest rate environments, Value Stocks tend to be great investments as they tend to have strong balance sheets, especially after periods of relative underperformance in comparison to Growth Stocks and the tech stocks we’ve seen dominate over the last decade. However, specific growth-oriented sectors can still insulate in high interest-rate and volatile environments if they possess solid fundamentals and underlying metrics.

In the long run, investing in high quality removes the need to market time Growth Vs. Value as your portfolio ultimately will be made up of both and should benefit in all market cycles relative to purely growth or purely value.

5. Find Resources and Tools to Educate Yourself

When people get scared, they tend to make emotional investing decisions, frequently trading during volatile periods. “You’ve got to be prepared when you buy a stock to have it go down 50% or more and be comfortable with it, as long as you’re comfortable with the holding,” says Buffett.

There are many stock market investment research and analysis sites with helpful information. Luckily, you found Seeking Alpha to make investing easy for you and for anyone interested in self-directed investments that have a chance to outperform the market. Seeking Alpha is the world’s largest investing community, powered by the wisdom and diversity of crowdsourcing, breaking news, contributor research analysis, Quant ratings and Factor grades, Dividend Ratings, and data visualizations. Likewise, for an instant characterization of stocks, our Quant Tools are an objective, unemotional evaluation of every stock, based upon data, company financials, the stock’s price performance, and analysts’ estimates of the company’s future revenue and earnings. As an overview, here is How To Find Profitable Investing Ideas And Improve Your Portfolio With Seeking Alpha Premium.

Seeking Alpha Quant Performance vs S&P 500

Seeking Alpha Quant Performance vs S&P 500

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Seeking Alpha caters to all investors’ needs and is designed to help you make better investing decisions. Over the last 10-years, Seeking Alpha’s back-tested strategies have proven to yield impressive returns compared to the S&P 500, beating the market 9 out of 10 years. With this impartial analysis, you can select stocks suited for your risk tolerance and objectives. Create your stock screeners or use the default Seeking Alpha screens based upon the types of stock sectors you like.


Exploring sites and utilizing tools so that you can make tactical investment decisions is an excellent step in navigating a volatile market without changing the overall risk level in your portfolio. Finding knowledgeable investment resources is also a great way to be a successful investor in volatile or rallying markets.

We have dozens of stocks for you to choose from. Our investment research tools help to ensure you’re furnished with the best resources to make informed investment decisions. If you do not have access to Quant Grades or screens, please feel free to try the 14-day trial of Premium.

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