How to invest in a bear market?
I know, you are probably thinking that with all your stocks in red, you already have lost a lot of money and probably would not want to invest.
I know the fear of losing a lot of money while buying the dips, but there are certain strategies that you can follow to make the most of these bear markets.
1. Invest in asset classes that are not related to equity:
If you are someone with a moderate risk profile, then you should consider diversifying your investments into other asset classes. You can invest in bonds, gold, and real estate. Every year, the best-performing asset class changes. Gold, which topped in 2019 and 2020, was at the bottom in 2021. No one can really predict which asset class will perform well, so if you are anticipating a prolonged bear market, it's always a good idea to diversify.
2. Invest if you can:
If you have a stable income, have a high risk appetite, and have a long-term investment horizon then you should probably consider buying stocks at this time, because historically bear markets have always been followed by a bull market, remember 2020,2008? If you are a long term investor, then buying goods stocks, when they are at rock bottom may fetch you high returns.
3. Invest in defensive sectors/stocks:
Defensive stocks are those stocks that are affected least by an economic downturn, previously PSUs, Pharmaceuticals, and FMCG were considered defensive stocks, but considering the current scenario, Pharma stocks are no longer considered safe because of the regulatory changes and their dependence on exports. Next, we have PSUs, they were considered safe since they are backed by the government, but due to high NPAs and high deposits with Private banks, they are no longer considered defensive. FMCG and Private banks are considered defensive since people will buy the soaps, detergents, and shampoo in an economic downturn. Defensive stocks are a good option to park investments, considering they have been bought at a reasonable valuation.
4. Don’t try to catch the bottom:
Just like you don’t know when Salman Khan will get married, you won’t know when the market will hit rock bottom, so if a company has a competitive advantage, is growing at a high rate, and is available at a reasonable valuation, you should not wait for the stock price to dip further.
5. Focus on quality stocks:
There is one famous quote from Warren Buffett, "When the tide goes out, that's when we find out who has been swimming naked."
It basically means that when the markets are bearish, the companies that have high debt, fewer cash flows, and no competitive advantage are hit the most. So if you are investing in a bear market, focus on investing only in quality stocks, which have clean balance sheets, durable advantages, etc.
While I understand that your crypto and equity portfolio is in red and is extremely painful for you to watch, always remember that markets in the long term have always been positive. So while investing in a bear market, don’t leverage, diversify your investments and always go shopping if your risk appetite is high and you have a long term strategy.
DisclaimerInvestment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial. Also, The
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