How To Be Successful In A Bear Market

Whilst some stock market investors recommend you adopt a buy and hold strategy when investing in the stock market, there are some instances, such as the start of a bear market, when holding onto your stock can prove to be financial suicide.

Part of being a successful stock market investor therefore comes in knowing when to buy stock and when to sell stock.

If you can buy stock when prices are low and sell stock when prices hit their peak, you are likely to experience an excellent rate of return on your original investments.

Of course, stock market investing isn’t such a simple affair otherwise everyone would be making money on the stock market.

In all likelihood you will never be able to accurately predict when the stock market hits rock bottom or reaches its maximum peak. The best you can hope for is being able to indentify the signs of an emerging bear market or bull market.

Even though you may not end up making maximum profit on your investments, you will still be well ahead of the crowd if all you can do is recognise when the market is going to drop and when it is going to go up because you will be able to change your investment strategy accordingly.

In this article, we will look at several important points you should take into consideration if you wish to be successful during an emerging bear market.

Should you hold onto your stocks in a bear market? Should you sell them? What should you do in an uncertain stock market? Let’s find out!

Your Financial Situation

Regardless of how well or poorly the stock market is doing, it is always a good idea to review your current financial situation before you buy or sell stocks.

Things to think about include the security of your financial situation, how much money you have saved in reserve as an emergency fund and your current level of debt or expenses.

If you find you are in good financial standing, then you can probably afford to buy stocks in the stock market.

If however you are in a poor financial standing, then you may be unable to buy stocks in the stock market or may be forced to sell the stocks you currently own.

Keep Cash

During a bear market the value of your stocks are likely to fall in value, which makes it a good idea to ensure that you have access to sufficient amounts of cash to see you through the bear market.

Ideally, this cash should be kept in a safe place such as an interest bearing bank account, bank bond or money market fund.

If you have your money invested in such areas rather than being solely invested in the stock market, you will still be able to earn interest on your money even though the market isn’t performing so well.

Having money tucked away not only gives you peace of mind, but it will also give you time to think about what other sort of investments you could make.

For example, while your money is earning interest in a bank account, you could be looking for undervalued stock with strong fundamentals that would make a good future investment.

Trailing Stops

Trailing stops are the active use of stop loss orders on a given stock. For example, if a stock is at $50 and you have a stop loss at $46, then if your stock moves to $56 you change your stop loss from $46 to $51.

During a bear market it is generally recommended to set your stop loss nearer the market price. For example, if you bought a stock at $60 per share and it is now worth $120 per share and you kept a trailing stop at 10 percent below the current market price, then during the start of a bear market you could change this trailing stop from 10 percent to 5 percent.

Trailing stops are a favoured method used by stock market investors to protect the gains they make from stocks.

What To Do During Uncertain Markets

One of the most well known facts about the stock market is that it can be an extremely unpredictable place. Sometimes you have highs, and sometimes you have lows. But the stock market isn’t always up and down.

Sometimes the end of a bear market doesn’t mean the start of a bull market and vice versa. Sometimes the stock market can move sideways, or little either way.

It is during times like these that investing in the stock market can prove to be a challenging task, because as a stock market investor you are not entirely sure what is going to happen which then makes adopting the right investment strategy even more difficult.

Listening To Stock Market Analysts

During an uncertain market you will often hear numerous stock market analysts giving opposing points of view. Some believe the stock market is headed for recovery, whilst others believe the stock market hasn’t yet hit the bottom.

As a stock market investor listening to such opposing viewpoints can very often cause confusion, because you are left uncertain as to who is right and who is wrong.

During such uncertain times, the best strategy is usually to wait it out and see what happens.

Although you may get it wrong, waiting it out keeps your money safe and this is what being a successful stock market investor is all about.

Minimise your losses and maximise your profit. Base your decisions on the research you have done, and don’t take unnecessary risks with your money.

So if you are uncertain as to which direction the stock market will take and none of the financial experts seem to agree either, wait it out and treat the market as if it were a bear market until the market becomes decidedly bullish.

Investing In An Uncertain Stock Market

In principle, investing in an uncertain stock market is simple. If you are sure that a bear market is starting, then you want to have 100 percent of your growth portfolio invested in stocks.

If a bear market is starting you want the percentage to be 0. Therefore, in an uncertain stock market, you should be looking at having 50 percent in stocks and 50 percent in other investments.

However, it is also important to remember that the investment decisions you make in the stock market will also be affected by your age, current financial condition, family and career plans.