A bear market is a period of time when the stock market declines, or falls. Bear markets are also sometimes called “down markets” or “bearish markets.”
The reasons for a bear market include:
- Economic problems, such as high unemployment and inflation;
- Political unrest, such as war or terrorism; and
- Changes in consumer confidence that lead people to spend less money on stocks, bonds and other assets.
Bear markets are frightening because our investments that we have cultured over the last few years are quickly getting decimated. Or, so it seems. It can be disheartening to watch the value of our portfolio shrink, but below are a few quick strategies for how to think about bear markets instead.
Strategies for Navigating a Bear Market
- Stay calm and patient
A bear market is a great time to stay the course and keep investing. You’ve already made the decision to invest, so don’t let a downturn scare you into selling your investments just because they’re down in value. - Keep investing
If there’s anything that can be learned from bear markets, it’s that they don’t last forever! If you have an investment strategy and stick with it through thick and thin (and even when everyone else around you seems panicky), then eventually things will turn around for the better–and then all those gains will be yours for the taking! - Think about the number of shares you have versus the dollar value. How you think about your portfolio will save it in the long run. Don’t concentrate on the value: this will always go up and down. Instead, focus on the shares you have. Over time, those shares will continue to climb as you invest and when the market recovers, so will the value of your portfolio.
Tactics for Minimizing Losses
- Stay diversified.
- Rebalance portfolio.
- Sell losses, but only if they’re truly losses and not just temporary dips in the market.
Tips for Taking Advantage of a Bear Market
The best way to take advantage of a bear market is by buying low. When prices are down, it’s the perfect time to invest in quality stocks that you believe will benefit from the downturn. Think of this like a great sale! Don’t you love to buy things when they are on sale? Well, here is your chance to snap up some great companies on the cheap!
Investing in defensive stocks can also help you weather the storm and protect your portfolio during periods of economic uncertainty. Defensive sectors include utilities and consumer staples–industries that tend not only survive but thrive during tough times because they provide essential products or services people need (like electricity) regardless of how well or poorly the economy is performing at large.
Long Term Investing Strategies
- Focus on Fundamentals: buy strong companies that you believe will be here in the next couple decades with good growth
- Invest for the Long-Term: as companies grow, so will your portfolio. Think long-term
- Rebalance Regularly: think of rebalancing (so you’re not overextended in any one stock) at least once per year
Selling Tactics
Sell in Stages
If you’re planning to sell, do so in stages. This will help you avoid the temptation of selling out at a loss and also give you some flexibility if the market rebounds before your next sale. If there are no major changes in fundamentals or news about your stock, consider waiting until after earnings season (the first week of January) before making any moves.
Sell Winners
Consider selling some of your winners as well. Even if they have been performing well over time, a bear market can be an excellent opportunity to lock in gains while still keeping some exposure to stocks that may continue rising during this period. Sell enough shares so that it doesn’t affect your overall portfolio strategy but still gives you some profit protection against further declines in price–and remember: don’t sell all at once!
Stay Informed
- Stay Up-to-Date on Market News
- Monitor Your Investments
- Use Technical Analysis: be careful here – use only if you’re skilled at looking at charts
Using Leverage
- Know your risk tolerance.
- My main advice: don’t use leverage unless you are very skilled and keep a close watch on your investments!
- Use leverage very carefully.
- Take profits quickly.
Risk Management
- Know Your Risk Tolerance – don’t buy fast moving tech stocks if you’re more conservative
- Have a Plan: how often you buy, when you sell
- Monitor Your Investments
Summary
Bear markets can be scary, but they’re also a great opportunity to invest in companies that will grow over the long term. If you follow the tips outlined above and keep an eye on your portfolio, you should be able to weather any storm with ease!
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