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Highlights
- While a bull market can shower you with attractive returns, a bear market is known to eat into earnings.
- A bear market is generally defined as a decline in asset prices of at least 20% from recent highs.
- However, investors should not panic, since there are several strategies that can be employed to withstand the bear market.
Shareholder returns depend to a large extend on the stock market conditions. While a bull market can shower you with attractive returns, a bear market is known to eat into earnings since stock prices are weighed down by negative sentiment. In a way, bearish conditions can be said to be the most challenging for shareholders.
How exactly do we define a bear market? According to a widely accepted definition, a bear market is defined as a decline in asset prices of at least 20% from recent highs.
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Both bullish and bearish conditions are part and parcel of any stock market. When it comes to a bear market, it’s critical to learn to tide over the challenges posed by them rather than panicking. There are several strategies that can be employed to withstand a bear market.
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Here is a quick guide to help you survive a bear market:
How not to fear the bear : A quick bear market Survival Guide
Be brave and don’t panic
Investors should not panic when bear market conditions arrive. They should know that a bear market is just a phase which would subside with time. Only those investors who stand their ground survive this phase. Experts advise investors to always separate emotions from the investment decision-making process during a phase full of negative sentiments. You must also know that most of the loss has already been done by the time a stock market enters bearish territory. Thus, selling now merely locks in losses.
Potential buying opportunity
During a bear market rout, almost nothing remains profitable. Most investors are forced to sit on a pile of cash. In addition, the valuations of stocks start shrinking. This is where some good buying opportunities come knocking. It is the time when investors can look for potential buying opportunities and follow them, looking for an attractive entry point.
Look for the outliers
Even as the overall market trades on a sluggish note amid bear market conditions, there are some outliers that continue to withstand the economic downturn. Retail and Consumer staples are a few sectors known to grow regardless of what is happening around.
Try diversification
Wise investors look for diversification as soon as they sniff bears entering the markets. Your investment portfolio can be divided between stocks, bonds, cash, and other assets. Investors can also allocate some funds to safe havens such as gold and silver.
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Bonds also offer good bets since they are less likely to lose money compared to equities. Blue-chip stocks are other good options since they are less volatile by nature and also provide dividends. Investing in defensive stocks is also a good strategy. Investors can also make the best of hedges via futures and options.
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