1/4/2018 - Economy and Finance

How to invest in a Bear Market?

By Roman Gutierrez

How to invest in a Bear Market?

One of the best ways to invest in clearly defined ascending markets is to “Buy & Hold” strategy, consisting of buying and maintaining medium and long-term securities by leveraging the low market trend a passive strategy involving low transactional costs and maximized profits.

When the markets are sideways, that is, they have horizontal trading intervals defined by certain seasons, the best is an active strategy, buying in the so-called stands or “pisos” and selling in the “techos” or resistance. This causes more account activity and higher commission expenses, but helps generate small “profits” on certain horizons.

Today trading and investment styles change, the US stock market. By forcefully breaking down the level of 2,700 points (SP500), confirms the beginning of a “bear market” or primary bassist market, which seems to be extended for several months or at least, in my way of seeing about 2 quarters while pandemic is controlled and a medical solution appears to the virus.

How can we invest in a lower market?

Strategy 1“Dollar Cost Averaging”: Which consists of progressively entering the market, making small weekly or monthly purchases while the current situation of volatility and crisis lasts, which allows to provide disciplined positions over time. This strategy covers the risk of prices and gives the investor the tranquility of not exposing its entire capital at one time, especially when it is not sure where the floor of the stock market is.

Strategy 2Combined Active Management, only for experienced investors or traders, consists of identifying which companies will be less affected from the fundamental perspective for shopping, and companies will be more impacted on their results to sell in short, thus would have a combined portfolio of ascending and bassist positions simultaneously, these should be managed or aligned to generate a positive balance or final result. The continuation of the downturn in purchases should decrease less, sales go down more or in a recovery, purchases go up more proportionally and short-term companies go up less or until they go up (%).

Many people try to compare this crisis with other important market falls, to have an idea of the time horizon can lead to a recovery, in the past we had structural and conjunctural economic crises, let us see the story:

  • Crack and black Monday of the year 1987 (16 months in return to pre-crisis prices)
  • 1990 Gulf War (8 months).
  • Russian Crisis 1998 (3 months)
  • Terrorist attack in NY 2001 (1 month)
  • Subprime Mortgage Crisis and Lehman Fall 2008 (36 months)
  • Coroavirus and Oil War 2020? (Crisis Coyuntural)
Finally, the most important thing will be to evaluate from the month of April the damage that the current context had in the operational results of the companies during the 1er. Quarter 2020, when you start the benefits season on Wall Street. If the market has an overreaction or not, the new projections can be developed.

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roman gutierrez

Roman Gutierrez

I help people organize their personal finances and investments. I am passionate about entrepreneurship and stock markets. I have 26 years of experience in the Professional Investment Administration. I am a Venezuelan consultant based in Buenos Aires.

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