Bear Markets – Surviving in Bear Markets

Some investors look at bear markets as frightening times, while other investors look at bear markets as opportunities. The problem with bear markets is that they are persistent trends that can be very difficult to stop. Investors need to remember that this not a temporary correction or a cyclical drop in investment value. When the markets turn bear, it is for an extended period of time and can cause a significant amount of financial loss. But when you understand how to navigate a bear situation, it can be easier to retain your earnings and avoid following the trend towards the bottom. Losing money is every investor’s fear, but realizing that fear on a consistent basis can be terrifying.

It can be almost impossible to predict the bottom of bear markets. Investors that try to buy based on what they perceive to be the absolute bottom of a security will usually lose out. One of the primary identifying behaviors of bear markets is that losses can occur in areas where there is usually stability. Many investors run to the blue chip stocks when the bottom starts to drop out, but blue chips can be so saturated that the slightest change in value can spark significant, but short-term, gains and losses. The idea behind surviving the bottom of a market can sometimes be to get out of the market all together.

Many investment experts will tell you that liquidating assets during bear markets is a panic move that hardly ever works. But if you truly need to protect your position when you find yourself involved in bear markets, then liquidating may be the only solvent solution. The problem is that if everyone starts liquidating, then the problem only gets worse. That is why experts always try and talk investors out of liquidating when the bottom starts to fall out. To find the bottom, there needs to be a firm foundation. Liquidating assets does not help create a strong market foundation.

In bear markets, you need to be patient and start your own recovery by getting involved in a series of short-term gains. Moving your money continuously from one investment to the next can seem imprudent and even expensive. But if you can find ways to make short gains, then you can offset any immediate losses and at least try to survive bear markets until the recovery begins. Remember that a real recovery can take years, so plan your approach and be patient.

About Richard Wilson