How to handle a bearish phase in the market?

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How to handle a bearish phase in the market?

How to handle a bearish phase in the market?
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Highlights:

  • It is important that one not make reactionary hasty decisions during a bear market
  • Since stocks and other instruments are relatively cheaper, a bearish phase may be used to diversify a portfolio
  • A riskier approach to a bearish market is short selling

One thing we know is that the natural cycle of life is up and down. If life had no sorrow, we may not know what happiness is.

Similarly, with the stock market there are ups and downs. But there are ways to handle a bearish phase in the market.

During a bearish phase, when your investment portfolio has lost a significant percentage of its wealth, it might send you into panic mode. However, it is important that one not make reactionary hasty decisions at this time.

Remember, while there might be a bearish phase, season, or even year, in the longer term, the major indices continue to progress higher.

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Plus, a bearish phase may provide the opportunity to acquire stocks for cheap. Money market instruments may be looked at here.

Since stocks and other instruments are relatively cheaper, a bearish phase may be used to diversify a portfolio. Also, inflation or not, geopolitical tensions or not, consumer staples experience demand all year round. Stocks of these companies may be looked at.

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Short selling

A riskier approach to a bear market is short selling. Short selling is done on the assumption that the stock will continue to plummet.

Here, stocks are borrowed and need to be returned. An investor borrows a stock and sells it in the hopes that they can buy it back when it has fallen lower and return it to its owner, making a profit in the process.

This is risky because the stock has to be returned to its owner whether it falls or gains. A lot of short-sellers were badly bitten during the GameStop frenzy.

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How to handle a bearish phase in the market?

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Bottom line

A bearish phase is a natural part of the investment cycle and if an investor stays in the market long enough, they are likely to experience one. Rather than panic after the value of a portfolio has fallen, and make rash decisions, it is perhaps best to look for ways to use the situation to your advantage.

Also read: Canada Budget 2022: What are Freeland’s plans for cost of living?

One thing we know is that the natural cycle of life is up and down. If life had no sorrow, we may not know what happiness is.

Similarly, with the stock market there are ups and downs. But there are ways to handle a bearish phase in the market.

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