How to survive the bear market

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No matter which way the financial winds blow, there’s always room to improve your investment outlook. But it would be naïve to think that the stock market game can be easy. So it’s important to constantly revise your portfolio, and understand that the work is never done.

A bear market is characterised by a decline in share prices by 15-20%, and it goes hand-in-hand with general market pessimism. However, there are ways to navigate the bear market, and careful planning will ensure you don’t get scratched. You may even rise up against it!


1.    Play dead:

To survive a bear market, your first step is to not make any sudden moves. The bulls have little chance in the current climate, and it is best to stay in the sidelines. With bear markets lasting as long as 2-4 years, it’s important not to get sucked in by market rallies characteristic of these periods. The shares to buy are the bargain bluechips, not (risky) hot new things. So remember not to panic.
2.    Go shopping:
It’s generally not advisable to buy until you see the major market indices in a medium-term uptrend. However, bear markets can provide great opportunities for investors. The trick is to be a picky shopper, and know exactly what you’re after. Under-priced is the key word here, and some investors, including billionaire Warren Buffet, say a bear market is the time to buy shares in well-performing companies. Remember though: value investing is a skill, and not every stock will be a bargain.
3.    Diversify
During boom times, it’s unwise to have a large percentage of your cash sitting in the bank, as it could be earning big money invested in the market. However, in times of stock market downturns, having your portfolio spread across stocks, bonds, cash and alternative assets is important to safeguard your investments.
How to slice up your portfolio depends on many factors, such as your risk tolerance, goals, long-term plans, etc. Seek financial advice before making widespread changes.

4.    Be defensive
Cyclical stocks generally perform according to the broad picture, and defensive stocks generally perform according to their own financial merit. Most commonly, defensive stocks tend to be steadier as they deal with products and services which are always needed. In turn, their business does not necessarily boom when the markets turn bullish, but they don’t suffer too badly when the market flounders.

Some experts say defensive stocks lie in ‘necessity’ sectors such as those dealing in pharmaceuticals, healthcare, information technology, and food staples and utilities. In theory, the demand for these products will continue regardless of economic swings.
#1 Tip to remember

The name of the bear market game is caution. By keeping things in perspective and staying realistic, you’ll avoid panicking and hopefully keep yourself out of harm’s way.


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