You Are Going to Lose Money
We are in a bear market and you, me, and John Doe will all be losing money. The difference is how much each of us will lose and what are pain threshold is.
As I sat everyday last week just checking my positions becoming a darker red with each second, I noticed I must of had ice in my veins because I felt nothing. i didn’t have to urge to sell, buy, or throw the computer out the window. Instead, I just sat there and felt confident brighter days were around the corner.
Whenever there is a bear market there are traders who feel they can time it or somehow beat it; however, for many, it is just a matter of how much we will lose. Up trends and down trends are a part of the market, and we are currently riding a downtrend (a very long one that is). Everybody is trying something different in hopes of tricking the bear, yet for the most part it just makes matters worse.
While I am able to hold on to my holdings and just sit, wait, and watch, others my not be able to. On the other hand, nobody wants to sit in a pile of of unused cash, so what can these people do?
Guidelines to Reduce Loss of Money During Bear Markets
Clean Up the Trash
Unless you REALLY know what you are doing, then now is probably not the best time for speculative plays. If Stock A doesn’t play out like it was supposed to, then that could be losses on steroids. In bear markets, losses are multiplied to the exponential power, while gains are few, weak, and far apart.
Invest in solid ‘best of breed” stocks. Although they might not give the exciting movements like other stocks, these types can usually weather the storm better. They have been around through bear markets before, and these companies know how to get by.
Move to Other Investment Vehicles
Investing in a stock or sitting in cash are not your only opportunities. There are many bonds or CD’s that can easily be entered. Although we don’t know how long this bear market will last, you can always enter a 3, 6, 9, or 12 month CD. Who knows where we may be by maturity of that CD?
Even though your return may not be something to get excited at, it is better than either a negative return on a stock or doing nothing at all with a cash position.
Step Away for A Second
There is really no need to be as actively involved in a bear market as you are in a bull market. The more you pay attention to bear markets; the more likely you are to get lost in all the news. This could result in greater losses.
Keep Cash Ready
Just like you should always have an emergency fund, you should always have an emergency investment fund. You never know when a good investment opportunity will show up right in front of you and, with bear markets, eventually good opportunities will come flooding in. So it is better to have more cash on hand than normal.
Ease Up the Bets
Make your positions on stocks smaller than other market types. This obviously lowers the risk of larger losses. It also allows you to diversify your money even better than before. In bear markets, diversity is the key.
Look for Changes
When bad times come knocking people search for blame. Look for companies who make changes, such as management positions. Change can be a good thing.
Don’t Panic, Don’t Get Fooled, and Stay Calm
If you do sell a position and then the stock spikes higher the next day, don’t look to get even. More than likely that push higher won’t be sustained. At the very least it will usually come back to the level you sold and then you can always get back in. If you try to get even, it WILL magnetize the losses even more.
So keep your cool, stay calm, and make sure you think clearly before hitting the trigger. The bulls will eventually come storming back, and we want to make sure we have money when that comes around.
Don’t Fall Asleep
The last and most important guideline to preventing bloodshed during a bear market is to stay prepared at all times. Markets have the ability to change in a moments notice. When the bulls begin to come around the corner don’t let them pass you by because you had your capital trapped in some horrible investment elsewhere.
