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The coming depression blog | April 19, 2018

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How to make money on Bearish Stock Market?

A bear market is characterized by a downward trend in stocks and stock market values ​​over a long period. No investor expects a bear market, but they are a part of the market cycle. So if you are a long term investor in the stock market, it is best to plan how to survive bear markets that you will encounter rather than to avoid them. It is true that a bear market can be devastating for retirees living on their investments. That’s why retirees are encouraged to maintain sufficient cash and vouchers through market downturns without being affected too much.

The trigger of a bear market and investor confidence may be due to various reasons. It may be that the public and investors feel that the worst of a bad situation is over. I always enjoyed watching stocks relative to other stocks in its sector. For example, if your stock is Microsoft and you want to compare it with other IT stocks, you should also check the performance of sectors compared to the stock market as a whole. Much money is lost in bear markets, but a lot of money is made during and at the end of a Bear Market. If you happen to be one of the lucky investors that can measure when we hit a market bottom, then you can go discount shopping and cash in on the early movement.

Here are some tips to get through the bear market cycle, with minimal losses:

  • Look for the number of stocks affecting the 52-week lows, to fall more. You can get these numbers from Investor’s Business Daily. You ultimately want to see how many “new peaks” starts to double the number of “new lows.”
  • “If a company is doing well, stock eventually follows” In other words, regardless of market conditions in general, you can still find good companies.
  • Search for crossing of the 30 and 200 days exponential moving averages.
  • The most important point to remember is: do not yield to the temptation to sell weak, to think that you will cut your losses. More often, this results in a permanent loss rather than temporary loss on paper that a bear market often represents.
  • Bear markets do not have time to wait. If you do, you will see a long time horizon to return to parity with your investments. You have worked hard for the money invested; it is worth the extra time to ensure your money is protected and appropriate.
  • The margin of error in a bear market is very low. If right now you have to work with little profit, you can trade in a higher volume at a higher rate than your money can afford to buy more shares.
  • “Wide diversification is only required when investors do not understand what they do” Do not be scared away from stocks. If you feel you need the incredible size of your portfolio for “weather the storm,” Try to weather it another way: compare what you know. Search for businesses to be sold at  discount. There must be many.

When it comes to stock selection in general, one should always compare the specific equity sector as a whole. Generally, I would never buy a stock that under performs a sector. The exception would be a major brand names (say McDonalds) through a difficult period and looking for a long rebound. It is a good stock picking strategy, but the purchase of small running of the shares is a good way to waste your hard earned money.

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