Bear Market

Jim has been extremely nervous since the COVID-19 outbreak as analysts are only now beginning to crunch the numbers on just how much businesses will lose as a result of pandemic. In just few weeks, Corona virus pandemic has shaved off nearly third of the global market capital. So it’s of no surprise as to why Jim has been pacing back and forth thinking about the stock market crash. How does he survive and overcome it and how does he invest wisely during a pandemic and its obvious aftermath?

The Bear Market:

The bear market refers to a market that is in decline of at least 20% in asset prices. Investors believe that the continuous drop in the share prices are resulting in a downward trend which will continue and perpetuate into the downward spiral. At this time the economy wil slow down and this will result in high unemployment rates as companies will start laying off workers. It is to be noted that a bear market is considered more dangerous to invest in, as many equities lose value.

Here are some essential investment strategies to be followed when the stock market takes a swipe at your returns:

1. Do not panic!: While this may seem unimportant, it is indeed really important to remember, “The Dow climbs a wall of worry,” despite calamities, pandemics, and economic woes, Dow has always continued to rise. It will do the same in the future. Investors are advised to separate their emotions from the decision-making process.

2. Average Down Costs with DCA: A long term investor (of 10+ years), you might opt to dollar-cost averaging. Thereby purchasing stocks regardless of the price, you are now able to buy more stocks at a low price when the market is down. Your cost will “average down” over the long period, which will, in turn, give you a better overall entry price for your shares.

3. Playing Dead: “The best thing to do during a bear market is to play dead,” and it is true. Financially speaking, it means to put a more significant portion of your portfolio in money market securities: certificates of deposit and other instruments with high liquidity and low maturities.

4. Take Stock in Defensive Industries: Defensive or non-cyclical stocks generally secures your performance in the market when it hits a rough patch. Companies that produce household non-durables: toothpaste, shampoo, shaving cream, and in today’s scenario, definitely a sanitizer- are examples of defensive industries since people will continue to use them even during hard times.

5. Inverse ETFs: Inverse Exchange-Traded Funds (ETF) provide investors a chance to profit from a decline in major indexes. Basically, when the major indexes go down, these funds go up. Hence allowing you to benefit while the rest of the market suffers.

6. Selling “Naked” puts: A put is an option that represents rights for 100 shares, it comes with a fixed timeline before it expires worthless and a specified price for selling. In the case of a naked put, it involves selling puts that others want to buy in exchange for cash premiums. In the deravative transaction you're on the receiving end and if you continue selling short-term puts on stable companies even if they pay dividends. By doing so, you are profited from the puts despite a bear market as there will be periods when the stock prices will rise.

7. Do Your Research: It is essential to do some research to find out which are the stocks, sectors, or assets that went up or held their ground when the market was crashing. Allocate cash for such industries, and once you find it is, in fact, doing well, it will continue to do so for quite long. As a bear market consists of different catalysts, this strategy will come in handy for the investors to allocate wisely.

It is crucial to trade with disciple and structure your plans in such a way that it fits the market accordingly. It is always easy to find another trader, but you could be out of commission for a significant amount of time if you lose your trading capital. You can still enter the QSE even in the time of a bear market with the following strategies in mind. Contact BBMS in need of assistance and consultancy in terms of investment as we can provide you with the right assistance in investing and purchasing stocks and in the type of industries you need to buy your stocks. Besides, Qatar is a country that is bound to recuperate quicker from a bear market and being an investment friendly country with one of the richest economies in the world; it is known to be prosperous in terms of GDP and economic growth.

You will never have to fret as Jim when you seek our assistance in the stock market and providing you with the right investment options in Qatar, call us at +974 40120333 or email us at info@bbms.qa for a no-obligation consultation.