The question that must be grappling the minds of all the investors and traders especially the new folks :
How do we prepare for an eventual bear market? (Not 1-3 day corrections )
Surely timing the market is something which may/may not work (usually a high risk high reward strategy). What are the other strategies that can be employed to make sure we continue to make some money or rather avoid losing money big time in bear markets which may either be in the form of Price correction (which is rather less painful than) the latter one i.e., TIme correction.
Let us all use this thread to discuss the thought processes, doubts, strategies, past experiences and anything under the sun related to our approach towards making money/saving money during Actual bear markets .
The only thing I can think of is to have an asset allocation in place. Allocate less to equities if someone is not comfortable with seeing a 20-30% drawdown from their current portfolio value.
For Investors, this is the ideal time to sell, exit the laggards and focus on your portfolio of good business. Once this clean up is done, every correction would be an opportunity to buy more of good business which you own. The biggest challenge is identifying good business, once done, price is just a Demand vs Supply issue and should not cause worry PROVIDED, you have an asset allocation in place.
My story is I witnessed, HDFC and other top notch stocks falling to an all time low during march 2020. HDFC for example was at 750 same with TCS, Infosys and many other stocks. Now when I look at the same stocks, I have understood that, once the stock pick is right, price is not an issue and any downturn should be used to buy more.
These are my personal views only and could be wrong
I can suggest a few steps for tackling a bear market, this takes into consideration the fact that you have separate funds set aside for emergencies. It has been seen that bear markets last from 1 to 3 years hence, at least aim to have 1 to 3 years of expenses set aside so that you do not need to sell in weak market. If you feel that a bear market is coming then move some position from equity to safer instruments such as bonds or fixed deposits. If you have considerable equity position then you can hedge your position by buying put options. This can help you make money in bear market and can even help you in buying quality stocks at a very reasonable valuation.
Buy in a staggered manner. Few months back when the market was going up and up, people wanted a correction. Now we do have one, how many will really buy or will they panic and sell is the million dollar question. This is where Asset Allocation helps to be neutral to price fluctuation and proper decision can be taken to buy or not to buy.
I had started booking profits in stocks after 17200 level 2 months back. Had sold almost 20 to 30 percent of my portfolio. The funds were kept in debt funds for this period. Now started adding niftybees from 17300 level. Not adding individual stocks for now.
Being a trader trend following Nifty it’s doesn’t matter whether it is going up or down. Am still making money.
On the investment side except for my ELSS which has a lock in period as it’s a tax saving product, I liquidated almost all my holdings the day I felt market inflated to valuations that doesn’t make any sense. So if market falls it’s not going to hurt much.
Further if we do zone in to a bear market it’s an excellent opportunity to buy again quality stocks with fair valuation.
Do check this Z-Connect post by @Bhuvan on “How to Survive a bear market.” If you guys like what you read, Don’t forget to share it with your investing friends who are seeing a potential bear market for the first time in their Journey.
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