WHAT NOT TO DO IN A BEAR MARKET.

Most markets, and certainly most currencies and commodities, are now officially in a bear market. That’s the arbitrary term for anything that is down 20 per cent from its peak. Of course, many stocks are down 40 or 50 per cent or more, so we might need a new term to describe them — zombie market? That is, dead but still moving?

Many investors fear a bear market, because it almost guarantees they will lose money. It also creates opportunities, so we would not suggest running away from a bear. With that in mind, here are five things not to do in a bear market.

Don’t change strategies

If you are on a losing soccer team, you don’t decide at halftime to suddenly put your star striker in goal. Changing strategies isn’t going to work, so stick with your game plan.

If you are a value investor, don’t start buying growth stocks. Utilize your strengths. The market is bad enough without you trying to learn a new investment strategy all of a sudden.

Don’t expect it to always be down

After seeing relentless selling, day after day after day, you might resign yourself to continued losses. This is one of the worst things investors can do. When everyone expects losses, that’s usually about the time markets turn around.

Keep your eyes open for opportunities. There is always something that might make you some money some day, but you need to be watching for it. For example, shareholders who stuck with Progressive Waste Solutions Ltd. are up 18 per cent so far this year on a takeover bid.

Whenever there is panic, selling opportunities abound, but you can’t benefit from them if you are hiding under your desk.

Don’t buy expensive hedge products

Exchange-traded-fund providers and brokers might offer all sorts of ways to hedge your portfolio in a bear market, from market-linked GICs to triple-down leveraged short ETFs.

These products are always expensive, and often do not work as intended, even in a continued decline. The barn door is already open, the horses have left.

Whether these are appropriate products or not (almost always not), the time to buy market insurance is before the bear market has hit, not after.

Don’t panic and sell

In a bear market, many so- called experts will start touting doom- and- gloom scenarios. Like RBS’s announcement to “sell everything,” or others talking about “financial Armageddon.”

It can be scary listening to these folks, but there have been bear markets in the past, and there will be bear markets in the future. The world, contrary to popular belief, is not ending just because oil has broken US$ 30, and the Nasdaq is down 12 per cent.

Old investors, like me, have seen it all before. Do not panic and sell. You may see more losses, but panicking is never a solid investment strategy.

Don’t bet on a reversal

Many investors bought energy stocks when oil hit US$40 on the belief that there was no way oil could drop to US$30. Well, here we are, well below US$ 30 and many are predicting US$10 as the next stop.

Likewise, Baytex Energy Corp. investors thought its stock might turn around at $10 per share, yet this week it dropped below $2.

I do not know where oil is going to bottom out, and neither do you. Just because something has dropped 50 per cent does not mean it cannot drop another 75 per cent. Do not bet on any recovery. Stick with a strategy and diversify.