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Discover Some Bear Market Investing StrategiesHow should an individual go about bear market investing? It goes without saying that the skills required to make money in the stock market are very different depending upon whether the market is rising or falling. One real problem is that despite the likelyhood of every private investor being faced with a bear market, not many of us are equipped with the real knowledge and skills to prosper through one. Could you make a profit when values are tumbling? Therefore, the real way to be able to make consistent profits through a downturn relate to education and being prepared for the situation. As an investment adviser, the stories that some clients pass on about their own 'experience' of falling prices is pretty scary! Since, few people are skilled or knowledgable at bear market investing, it seems that many people just stop looking at daily market prices! Therefore, in their own minds, it isn't happening. Your author, has met a number of people who operated the rather basic strategy of "not updating my market prices online for several months" or "not switching on my investing computer". You, dear reader, should resolve to be much more prepared for bear market investing than this. Essentially, there are just a few main strategies for self-protection and, hopefully, prospering during a downturn. These strategies include: > Flight to safety. If markets are choppy and volatile and the general trend is downwards, why be in the market? Why not, instead, sell a worthwhile percentage of holdings and move the money into either cash or bonds (medium and long term government or corporate debt). As and when the market seems to have settled, and hopefully, there is some value to be found, assets can be repurchased. > Buy defensive assets. In every phase of the business cycle, there are some assets which rise in price whilst others are falling. This is also the case in the stock market. Some sectors will rise whilst the market generally is falling. It is therefore possible to stay in the market and make returns. > Buy units in a 'bear fund'. Some mutual funds are designed with downward market movements in mind. These funds often show very poor returns as the stock market rises. In long bull runs, ownership of these funds can be justified as portfolio diversification, but is more likely to be very costly! > Trade in the market. An agressive bear market investing strategy is to actively profit from the price falls. Historically, this is known as "short selling" or "going short". The process essentially involves the trader selling shares which they do not actually own. The hope is that when settlement day comes, the shares can be bought back in the market at a lower price and the trader will make a profit from the difference in prices. In many countries, and on many markets, short selling is frowned upon and may well be illegal. The legality of the procedure should be investigated before making a trade. As markets have progressed and become much more technical with ever more trading options available, short selling is not the only route to profits. For example, it is possible to bet on the downward movement of a company price or the market in general by using options or spread betting. To read more about stock market bull and bear markets, please visit the following pages:
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