Friday, 29 June 2012

Don’t Panic In A Bearish Market

Stock market investing in a bear market can be tricky because the entire market seems to be on the decline. One should not panic in such a situation.

1. Find Undervalued Stocks:
Look for undervalued stocks which have a price lower than the anticipated stock value in the near future. If the company is fundamentally strong and shows promise but has a very low stock price it may be a good choice, especially in a bear market.

2. Engage In Short Selling:
This investment method involves a complicated process which utilizes the loaning of stock shares. The investor borrows the shares with an agreement to deliver the exact same number of shares at a later date. The investor makes profit by selling the stock at the current price and then repurchasing when the price of the stock drops. However, this must be practised only by experienced investors.

3. Watch For Signs of A Bull Market Approaching:
Both bull and bear markets are cyclical, and eventually a bear market will turn bullish. Smart investors watch the market carefully so that the first signs of the market turning can be detected and acted on quickly.

4. Invest For The Long Term:
Successful stock market investing will usually look at the long-term prospects of a stock, and this is true in a bear market as well as a bull market.

5. Avoid Margin Positions:
A bear market is not usually the best time to take margin positions because of the high probability of a market decline. Most professionals and experienced investors advise that margin positions should be closed and avoided until the market conditions turn more favourable.

6. Don't Hold a Losing Position Out of False Hope:
Some investors refuse to sell even when the losses continue to pile up, either from emotions like fear or out of false hope that the market may turn around soon. Be realistic about the stock prospects, and sell if this step seems like the best choice.

7. Don't Panic and Start Selling Everything:
A big mistake made by many investors is to start selling stocks indiscriminately when a bear market hits. This is done in an effort to minimize the investment losses. However, the prudent strategy would be to keep the fundamentally strong stocks and sell the weak stocks in the portfolio. Once the market revives, the good stocks will rebound strongly and fetch good returns.

8. Only Choose Stocks from fundamentally strong Companies:
Successful stock market investing means performing extensive research on each stock considered. Only including quality stocks from fundamentally strong companies in the investment portfolio will help protect the investment value over time regardless of any short-term market changes.

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