Investing strategies in a bear market
ABEAR market is a period of negative returns in the stock market where stock prices fall 20 percent or more. Because of this scenario, investors may apply different strategies that can be beneficial for them. It can be a combination of investor’s risk tolerance, investment horizon and overall goals.
1. Defensive move. For investors looking to maintain positions in the stock market, a defensive strategy can be a good move.
This type of investing strategy involves investing in large companies with a strong and long operational history in the country or globally. It projects stability because of large market capitalization which can be less affected by an overall downturn in the economy or stock market.
These stocks are also called defensive stocks because they serve the basic needs of consumers or businesses such as food, utilities or basic goods. Since the demand will remain for the said companies, downturns can be managed giving investors’ confidence to hold or buy these stocks.
2. Selling out. Since we have different risks tolerance, we can also set a parameter when to sell our stocks. Selling your investments and holding cash can be a conservative move this season. You may also move it to a lesser risk type of investment for a short period of time and transfer back once you see the growth in the economy and momentum for bull market.
3. Shopping for bargains. Have you tried going shopping during sale in a mall or online platforms? Probably yes, most of us have thought of shopping spree every time we see a sale sign isn’t it?
Aside from the perspective of saving a portion of our money, we love to buy things for our love ones with the idea of gaining benefits from it. It could be a useful product or maybe a service that can be helpful for us. This can be also applied in the stock market.
During a bear market, you can buy more stocks at cheaper prices. Applying peso-cost averaging by investing P1,000 per month regardless of the trend can be an advantage. Invest in stocks that have value and dividend paying ones. Dividends can help us weather and make it less painful during a bear market.
4. Learn the basics. If you are a first-time investor who’s planning to enter the stock market at a bear season, this is also a good time for you to learn the basic strategies. Attending trainings, listening to podcasts or watching Youtube contents about the market can be a good start. Consider reading books also which can be a source of insights and proven strategies to become a good investor.
5. Re-evaluate your financial portfolio. Investing needs, timeline and strategies may change over time. If you transitioned from being a single professional to married person or maybe you are now a parent, it is a good time to re-evaluate your financial needs.
For example, if you are a parent, you might be thinking of starting to prepare for educational funds of your first born, this way, your allocation of investments can be a mixture of high risk-high return and low risk-low return type of funds. This can address both your short term and long term needs.
As of writing, the Philippine stock market is at the 6,984 level. Over the past two years since pandemic, we have seen a combination of uptrend and downtrend movements but then, if you apply the said strategies, we can still take advantage of our current level.
For example, if you bought a stock during the first few months of lockdown at around P137 per share, you would have a gain of around 58 percent to 60 percent as that particular stock is now at P220 per share. This is just an example of how we can strategize on a bear market.
Always looking for opportunities to grow and invest in the midst of uncertainty will be a combination of fundamental and technical analysis. We can’t project everything 100-percent accurate; but if we can maximize the data that we have and match it with our principles, goals and ideas of other people, we can achieve greater things together.
Always remember that we are all part of nation building; and being a businessman or investor, you are playing a huge role for our progress.