Investment in a bear market: Are stock market downturns good?

Bear markets & bull markets.

Bear markets, which refers to wall street slang as times when prices are declining or moving downwards.  Are usually regarded to as negative events.  Many people fear them.  Fear they will lose money.  If you bought high and are selling low in a stock market downturn, then yes, this could be a negative time for you.  But for many these times mark a huge buying opportunity.

Bear definition: what causes market crashes

Trends can change from a bull market to a bear market for many reasons.  Negative news on companies, scandals, bad earnings can all attribute to people beginning to sell.  The stock market can take notice and herd mentality causes fear in many people.  This causes large sell offs and creates downturns in the market.  Sell offs and downturns can happen for completely unjustified reasons.


The share price of companies is influenced by the actual business, their management, progress and profits.  But it is also influenced by societal views and opinions of the company or brand.  Fundamental analysis and technical analysis is both necessary when looking at stock market prices.

Market crash 2018?

Most global markets have seen a huge bull market run over the last decade since the 2008 credit crisis and market collapse.  Many people lost retirement savings and investments overnight.  But since then many indexes and markets have gone to new heights never seen before.  The market works in cycles.  What goes up, must comes down.  It’s only natural.  And as a long term investor, you should look forward to these downturns.

Will we be seeing a market collapse, stock market crash or the start of a bear market in 2018?  No one can predict the future, and be wary of those who claim to be able to.  Only time will tell.

Are bear markets bad?

Bear markets are only bad if you plan on selling shares in the short term.  As a long term investor you should not be planning to sell for the foreseeable future.  If you are planning to sell soon, if for example you are in retirement, you should focus a larger percentage of your portfolio in safer investments such as bonds.

The cycle of the stock market to turn into a bear market and see stock prices lose value is healthy.  It allows extremely overvalued companies to come back down to earth.

Bear markets also allow savvy investors to make a profit.


Ways to make money in a bear market.

You should always have a portion of money liquid, ready to take advantage of opportunities or in case of emergencies.  I am a proponent of being as fully invested at all times, as you possibly can.  But being ready for buying opportunities is smart.

Re-balancing your portfolio a few times a year also allows you to systematically sell high and buy low.  When some stocks are high, you sell off a bit and buy some shares of companies you believe when they are low.

Being educated on companies and industries you understand, and staying up to date on news of the stock market and market trends allows you to buy when companies prices are low.

Future of the stock market

Companies will come and go in the stock market.  Bear markets and bull markets will also come and go.  Remember to stay invested through the bad times, don’t let fear and emotions get in the way of investing.  Always have some emergency funds ready to take advantage of opportunities to make profit, and expect the bad times.  They will certainly come.


Here is a famous quote by Baron, Victor Rothschild

“When there is blood in the streets, I am buying”

 

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