4 Investment Strategies for a Bear Market

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How to handle a bear market? Here we have discussed 4 investment strategies for a bear market. What you should do in such bear market phase? How to build your portfolio?

How To Handle a Bear Market? How To Build Your Portfolio?

Introduction

How to handle a bear market? Here we have discussed 4 investment strategies for a bear market. What you should do in such bear market phase? How to build your portfolio?

Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

4 Investment Strategies for a Bear Market

What is a Bear Market?

  • A bear market is a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
  • Typically, bear markets are associated with declines in an overall market or index.
  • For example, when the BSE Sensex fell to 52-week low of 29,388 on March 13, 2020, we entered a bear market, because that was more than 20% lower than the BSE Sensex’s most recent 52-week high of 42,273 on January 20, 2020
  • Bear markets are the bigger, more ferocious versions of “market corrections,” which are typically brief, shallow downturns in the market. What at first seems to be a correction may quickly become a bear market, if stocks continue to fall.
  • Bear markets can occur in any asset class. In stocks, a bear market is typically measured by an index like BSE Sensex, NIFTY. In bonds, a bear market can occur in Government bonds or corporate bonds. Bear markets also happen with currencies, gold, and commodities such as oil.
Causes of Bear Market
  1. A bear market is caused by a loss of investor, business, and consumer confidence. As confidence recedes, so does demand.
  2. This is the tipping point in the business cycle. It’s where the peak, accompanied by irrational exuberance, moves into contraction.
  3. This loss of confidence can be triggered by a stock market crash. That occurs when stock prices plummet 10% in a day or two, as they did in March 2020, when the outbreak of the new coronavirus rocked the financial markets broadly. Crashes are dangerous because prices only have to fall another 10% to trigger a bear market.

What a Retail Investor Should Do Now?

Strategies for a Bear Market
Investment Strategies for a Bear Market
1. Don’t Put Corpus required in next 3 years in  Equity & Equity-related Instruments
  • Always Put the Corpus towards your short-term financial goals realising in next 3 year into Fixed Income Securities  & not into Equities.
  • For Emergency Corpus / Short-term Financial Goals, always remember, Security / Liquidity is much more important than earning higher returns through equities by taking higher risk.
  • You should never try to convert your short-term corpus into a long-term asset.
2. Uninstall Portfolio Tracking Apps & Websites, if you can’t invest more
  • Do continue with your existing SIPs towards your long-term financial goals.
  • You can make a lump sum investment in bear market to average your investments for long-term financial goals.
  • Tracking your Portfolio frequently in bear market phase can  affect your financial as well as mental health.
3. Avoid Negativity; Stay Positive
  • Don’t Watch Business News Channels, as the continuous flow of questions and information regarding the current falling stock market can create a negative vibes around you.
  • Don’t Interact with Pessimistic Friends as your investment approach could get affected with the pessimism in the market.
  • Start Reading about Warren Buffett – It can be motivating for you as an investor.
    • Stay motivated by reading about the value investing. One can grab the opportunity to invest in fundamentally strong stocks which have undergone a decent correction now.
    • Thus, as a long-term investor, you can take advantage of Rupee Cost Averaging (Buying the shares at a lower price in a bear market)
    • It will benefit you from the accelerated upside in your portfolio in over the longer horizon.
4. Consult your Advisor before Exiting
  • If you are not a knowledgeable investor, a financial advisor can help you choose your investments and manage your portfolio so that it can weather different kinds of markets.
  • Get your Financial Planning & Portfolio re-assessed properly by your Financial Advisor. Make Decisions by re-visiting and re-evaluating your financial goals.
  • Financial Advisor can also be there to help you avoid making rash decisions during a downturn – like selling at the bottom when you don’t have to. If you make an exit in current bear market phase, it will be very difficult to re-enter into the market in upcoming lower levels.

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