Bear Market is a condition where there is a wide market decline within the stock prices. The decline can start at 15-20%. The pessimistic sentiment about the market also accompanies that decline. To fighting back this dangerous situation, here are four ways to survive a bear market.
1. Minimize Your Fear
As the saying goes, “The Dow climbs a wall of worry,” overtime the Dow continuously climb despite the economic woes and other countless calamities. Thus, investors need to always put away their emotions, from the process of creating an investment decision.
Always remember, what seems to be a massive global catastrophe today, may become a bleep on a screen radar, years later.
2. Play Dead
If there is a bear market, then the bears and bulls rule is not true anymore. Playing dead is similar to when you meet a real grizzly in the woods.
In those two situations, fighting back can be extremely dangerous. But if you stay calm, you will not put yourself as the bear’s lunch.
In this financial situation, playing dead means putting a bigger portion of your portfolio in money market securities, like certificates of deposits (CDs). The investors should choose the instrument with high liquidity and short maturity.
3. Diversify
Diversifying your financial asset means having a percentage of your portfolio spread among various assets, like cash, bonds, stocks, and other alternative assets. The percentages of each asset rely on individual investors’ risk tolerance.
Every investor has a different situation. A proper asset allocation strategy will let you get away from the potential negative effects. That way, you can put all of your assets in one basket.
4. Try to Find Value Stocks
There are great opportunities from bear markets. Yet, you need to know what you are looking for. During a bear market, people usually call it battered, beaten up, or under priced.
However, value investors, like Warren Buffet, usually see this situation as the buying opportunity. That is because the valuation of good companies, often get hammered during this situation. Buffet usually build up his position on some of his favorite stocks together with poor companies at attractive valuations.
