Making money in a bear market, money
Profiting in a bear market, financial
Making Money in a Bear Market
 Last year around this time I remember speaking to a financial advisor and asking him if we were in a bear market now. His response was "ask me next year." The truth is that no one has a crystal ball which can tell them exactly how the markets will perform. It's hard to predict what will happen tomorrow in the markets yet alone a year from now. Hindsight is always 20/20 in telling whether or not the stock market is in a bull or bear run, however, hindsight can't make you money. The trick is to try and use all information available at the current point in time to try and plan investments for a long-term horizon. By long-term I mean six months to one-year.
Some advisors offer advice such as "invest for the long-term" and buy quality blue chip stocks which pay dividends. The truth is that when a market enters a bear-phase fear and panic selling cause most blue-chip dividend yielding stocks to also suffer. If you hold a stock which yields a 5 percent dividend falls by 10 percent throughout the year then you will still have lost. Most advisors will retort "don't invest in just one stock, diversify your portfolio." When the whole market drops your diversified holdings of stocks will still drop, though perhaps by less than if you had held only one individual stock.
If you believe that the market will be in a bear phase with the general stock market falling for the next 6 to 12 months then there are various strategies which you may use to play the market. Keep in mind that these strategies will only work in a bear market and will produce negative returns if the market turns into a bull market. Even if the market is in a bear phase then any number of events could affect short-term market trends and reverse the market such as the US Fed lowering interest rates by 2 percent, OPEC deciding to increase production bringing down the cost of oil, emerging markets growing faster than predicted, etc. There is any number of events that could upset the downward trend of a bear market. Any investor wishing to invest during a bear market must be very cautious.
If you believe that the stock market is in a bear trend then there a few ways to play the market:
- Sell-off stocks and hold cash
- Short sell individual securities
- Buy Bear-market exchange traded funds ( etfs )
- Hold appreciable assets
The approach which you take will depend on your (1) risk preferences and (2) how confident you are that the market will spiral downward. Your time horizon may also affect which method you adapt to profit in a bear market.
(1)Sell-off stocks and hold cash
The first approach is the riskless approach of selling of any securities which you own, if any, and holding the money in cash. Hold money in cash and earn interest at a low-rate until you believe that the market has bottomed. One of the problems is that it's impossible to predict a bottom. For the risk-adverse investor who is uncertain whether the market will fall or start recovering this is the safest option.
(2)Short sell individual securities
This may be one of the riskiest ways to profit from a bear market. The risk is that a particular stock may actually rise in price even though the general market is falling. Of course, the gain may be high if the particular stock falls faster than the general market. This is a risky approach to investing and should only be undertaken if you are well versed with the trading patterns of this stock. Any good news for the company could cause the stock to shoot up in price and bring financial losses for short-sellers. The main problem with short-selling is that your gain is capped while your losses can be unlimited, the opposite of a long position.
(3)Buy Bear-market exchange traded funds ( etfs )
There is a wide range of bear-fund ets available which can let you select whether to hold a short position in a broad market index or target a specific sector. Some good funds for this use are offered by Horizons beta pro etfs and Pro Shares ets. For instance, if you believe that real estate stocks are going to fall then you may wish to purchase UltraShort Real Estate etfs. The great thing about etfs is that they diversify risk compared to short-selling just one security. You may be right about picking which direction a sector will perform, but you may not be right about which individual stock in that sector to short-sell.
(4)Hold appreciable assets
This approach involves holding assets such as precious metals, houses, oil, natural gas, or commodities which you believe will hold their value as the economy falters. There are obviously risks involved as you may not pick the correct asset to hold. If you do intend to hold precious metals then there are various ets such as ishares available. You can read financial articles, magazines and newspapers to get an idea of which assets may appreciate during a recession. Author Robert Kiyosaki recommends holding silver. Other authors recommend a range of commodities such as natural gas, gold, diamonds, and uranium. The key is to do your own research and determine what asset class(es) you should hold should you choose this strategy. One advantage to holding appreciable assets is that they may appreciate regardless of a bull or bear market.
It is possible to make large profits and earn money even in a bear market. You may wish to combine the four options mentioned above to create a diversified strategy for profiting from a bear market. Remember, these strategies only apply to a bear market! The only one who will profit or lose from your investing strategies is you. Be sure to do thorough research before you plan out your portfolio. This article does not suggest or imply that the stock market will enter or continue in a bear phase. If you are uncertain whether the market will perform as a bull or a bear then hold you money in cash and don't hold any securities.
By Kyle Ware
Our system offers a free trial. Our system allows you to buy and sell businesses. Furthermore, you can use our system to create a web business listing. There are many instance were our system can be useful. For instance, warehouse operations can use our system to advertise their business for sale. Our system offers a free online buying and selling tool.
Making money in a bear market, market
|
