Be Smart to Survive a Bearish Stock Market

bearish stock marketWhen the market was following the bearish trend, rather than losing, I was still able to make money. I am definitely not kidding, but it is true. Where it is written that people only lose in times when market is not doing good. Though it is correct to some extent but it is not a complete story. If you know the techniques of how to survive and deal in bearish market conditions, then I am sure you will also fall in the category of those who know how to earn in adverse conditions. The techniques are extremely simple and straight but still it depends on your smartness as to how you actually put them in to implementation.

In order to survive a market crash, there are majorly three simple, authentic, proven, easy and robust rules that you need to follow:

  1. Buy early – It does not mean that you will sit like a watchdog and wait for the market to decline before you invest. You definitely don’t have to catch the lowest price, but you need to be smart enough to identify the market trend, i.e. the direction in which the market is moving and as a visionary set your expectations that how low the market can go. Now, before it is too late and the market direction reverses, be prompt to act and buy at the right time. Don’t get disheartened if the market further dips. Be assured that there will be correction in the market. Therefore, here acting on the right time is the essence.
  2. Buy often – I am sure you must have head an old adage “do not put all your eggs in one basket.” Similarly, you should not put all your eggs in one go. Buy stocks but in phases. You may keep aside a fixed amount each month and invest in stocks on monthly basis from it. Even if you are not good at making great stock decisions, at least by following this trick you will be able to even out the up and down moments of the stock market. For example – you have purchased 100 scripts of XYZ Company at say Rs. 200 and the stock prices fall to Rs. 180, you will lose Rs. 20 on each share sold at this price. If you sell all your stock holding then your total loss will be of Rs. 2,000. Now, let us say that you have purchased the same stock of 100 units at Rs. 140 few months back. And now, you want to sell all these 200 units, then your gain on the 100 shares purchased at Rs. 140 will be Rs. 40 per share, i.e. Rs. 4000 in total. And the overall position will be Rs. 2000 in gain as gain on shares purchased at Rs. 140 is Rs. 4000 and loss on shares purchased at Rs. 200 is Rs. 2,000. It is not necessary that you will have to offset a loss from the gain of a particular stock only, you can use, and in fact you should use your portfolio to assess your loss / gain situation at a given point of time.
  3. Buy cheap – The simplest thing is to buy cheap. When you find the crash in the market as scary and you believe that the market has declined to a larger extent, that’s the time when you really need to do some serious thinking on the stocks to be added in your buying list and act accordingly. To be on a safer side, you may however, use valuation metrics like price to sales and price to earnings so that you can be sure of the stock that you want to add in your portfolio. Understand one thing that cheap does not necessarily mean the lowest price but it refers to the price which is comparatively lower and at which it is feasible enough for you to invest in stock. This can also be the price which you believe will be the mark from where the market will take a U-turn.

Follow these steps and half of your work is done. But at the same time, acknowledge the fact that the market will not gain in a night’s time. It will take days, weeks or months to the market to get the correction done. Till that time, you will have to wait for the bullish phase to sell your holdings. Now, when you find the market bullish, don’t sell everything in one go. You again need to be calm and patient, by selling in phases.

Rather than cribbing on the bearish condition of the market, make right choices and convert the adverse condition by following the above mentioned steps and grab your share of profit.

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