When market is bullish everyone including fools make money. Experts are those who make money even when market is bearish.
Below strategies may help an investor to survive and even make profit from a bear market. Some strategies will work better than others, depending on your investment style and personality.
Strategy 1: Go to 100% Cash
This is a drastic move, and one that may be done out of fear and panic.
Benefit: You can let the market fall and not have a care in the world.
TIP: Make your decisions based on fundamentals, and decide what fundamentals will bring you back in.
Strategy 2 : Go Partially into Cash
Selling off the most overvalued and junk securities in a portfolio is a reasonable strategy. This requires analysis and a strategy.
Benefit: Having cash available to buy when stocks are cheaper, and protecting the portfolio during the decline.
Strategy 3: Stop Loss Orders.
To protect a portfolio on the downside, Stop Loss orders may be the answer. It is an order placed below the current price. If the stock falls to that price, it is sold automatically.
Benefit: You can keep your portfolio until the Stops are hit, and you can raise the Stops as the price of the securities go up.
Strategy 4: Actively Swing Trade. This strategy is for very, very few investors. By actively trade, I do not mean day trade. I mean watching a particular security and trading it from point A to point B and not caring if it goes further up. Most importantly, a trader has to be willing to take losses if it doesn’t work out right.
Benefit: Done right, it can add percentages of return to a portfolio’s performance.
Strategy 5: Do Nothing
This is the advice given to many investors as they watch their portfolios dwindle. While it is good advice during a bull market, it may not be the best strategy during a bear. Doing nothing means you are willing to accept all the risk of the market. We don’t see how that is a good strategy.
Benefit: You don’t have to do anything, and when the market eventually recovers, you are fully invested.
Hope it will help you in bearish market. Happy investing!