To know what to do in a Bear market helps to know what makes it different to a Bull market.
Simply put, a Bear market is one when stock prices have fallen 20% from the steady highs in a Bull market.
Likewise, the market becomes a Bull again when stocks have risen 20% after the Bear market has reached a bottoming out.
The transition from Bull to Bear occurs mainly when there is a sudden crisis in the economy which throws it into recession and investors into widespread panic.
It is uncertainty during the moment of crisis that grows to become full-on fear prompting investors to panic and sell.
For instance, the dot.com crash of 2000-2002; the financial crisis of 2008-2009 and the recent 2020 pandemic.
In total, there have been thirty-three Bear markets since 1900, so they are not uncommon.
Which makes it even more important to know what to do in a Bear market when it arrives.
Having a strategy ready to deal with it is crucial. Having a proven one is even better.
Here are 9 important strategies and approaches that will help you not only survive a Bear market but also potentially thrive in one:
#1 Don’t panic
It can actually be a huge mistake to sell just because the market has plummeted into Bear territory.
There is no need to sell. Simply remind yourself that the market will always go back up. It always does.
History tells us that and history is not about to change.
#2 Diversifying your holdings is key
The reason? Because having all your “eggs in one basket” is yet another mistake, for any investor.
Solid investing and trading are all rooted in having a portfolio and it is called a portfolio for a good reason – you have more than one stock in it!
#3 Revert to assets that are recession-proof
These include commodities such as gold and silver, food, utilities, government bonds and even… cash.
In other words, doing NOTHING is actually a really good strategy in a Bear market, just leave your money where it is for a while!
#4 Think long-term
The trouble with many who leap into trading and investing is they think they are going to get rich quick.
You won’t unless you get exceptionally lucky. Real investing and trading is built on sound knowledge, skill, strategies and understanding that it’s about being patient.
When in a Bear market, it’s all about preparing for the next Bull market by being cautious, limiting losses, and taking time to consider probabilities.
#5 Go for quality
If you are going to invest, one good strategy is to make the most of opportunities that might arise from drops in the prices of the bigger, household-name companies.
Believe it or not, they do crop up. You could be having a share of the likes of Apple, Facebook, Amazon… even PayPal and Goldman Sachs!
Point is – these are companies that WILL bounce back. Their price will rise. No question.
Being hedged in a Bear market is a bit like having insurance to reduce risk. But this also means you will receive reduced profits.
However, hedging is a great way to protect your portfolio because in effect you’re going long and short with the same stock.
#7 Build positions over time
This is linked to long-term thinking and quality, for opportunities will arise during a Bear market to buy more than once in any one stock.
In other words, you can get in more than once thus adding to your position within that one stock.
Adding to one’s holdings, if they are quality ones, is an excellent way to enhance one’s chances of making a profit when the market goes Bull again.
#8 Knowing is succeeding
This is all about research. It’s absolutely imperative to know what you are buying into… even more so during a Bear market.
If you are following good strategies and are buying when prices are at a discount, then you already know how critical it is to make sure you study the company and its track record as a company.
#9 Follow proven and profitable trading strategies
Here at Investment Mastery, we follow the VCA strategy. It’s short for Value Cost Averaging. It’s a strategy devised by our founder and is proven to be highly successful and profitable.
It’s one of the strategies we teach our trading and investing students and club members.
Bear markets don’t last forever… so it’s a good idea to step back, pause, breathe, and make the most of this lull to prepare for the Bull market to come.
BUT… don’t let that stop you invest.
After all, according to Crestmont Research, when you buy stocks is not important – it’s how long you hold them for that matters. They also conclude that buying high-quality known companies and innovative ones in a Bear market is a perfect time.
As for us, teaching strategies to deal with certain market situations is something we do perfectly here at Investment Mastery.
It’s something we do very successfully, as can be evidenced by our testimonials and our own consistently profitable portfolios, which we publish here.
To find out more, why not get in touch?