Bear Market: How to Invest in a Falling Market?
If you are new to the world of share market investments, you should be aware that it’s a lot more than opening a trading account or Demat account. You, as an investor, should be well-equipped with the terminologies of the share market and should be ready to face unfavourable conditions.
Again, when it comes to a share market investment, you should be familiar with the concepts of a bear market and a bull market. This is important because the market conditions will play an important role in defining your returns on investment.
A bear in the stock market or a bearish market implies that the stock prices have fallen beyond 20% from their recent high. On the contrary, a bull market is when the stock prices rise, and the investors are confident about investing and selling their shares.
That being said, if you are a well-learned investor, you can even expect higher returns by investing in a falling market. Of course, it’s risky and will require you to have a lot of patience and market knowledge. However, if you have the right investment tools handy and if you can keep a few pointers in mind, you can make the most of your investments in a bear market as well.
Let’s get straight to the pointers now.
Research Well in Advance
It is crucial to research well about the fundamentals of an organisation that you are looking forward to investing in. More often than not, when the market is ‘bearish’ in nature, this research becomes all the more prudent. So, first, you will need to narrow down on your choice of stocks, spend a good amount of time going over the business’s outlook and its overall financial performance in the past.
As a rule of thumb, businesses with high growth potential are considered more favourable investments. However, during a bear market, even a few companies with typically lower growth potential might witness an increase in their share prices. Hence, conducting the necessary analysis and keeping a lookout will help you get acquainted with newer equity opportunities.
Also Read: Fundamental Analysis & How to do it?
Diversify Your Investment Portfolio
Secondly, you should invest in alternative instruments unrelated to the stock and bond markets. This way, when the stock market crashes, you can benefit from the rise in the value of the bonds that you have invested in. However, it would help if you were patient with your investment, even in this case. Also, if you are not too sure about where to invest, it’s prudent to take advice from the market experts.
Also Read: Everthing You Need to Know about Bear Trap
Follow the ‘Buy Low Sell High’ Advice
The classic rule of buying shares when the price drops and selling the same when the stock prices rise stands true for investing in the falling market. The dipping stock prices can showcase several things about a company in normal market conditions. For example, there might be a decline in its fundamentals or poor market sentiment.
However, when the market is bearish, you can even go for the stocks of the high valuation organisations at an average purchase cost. And this can result in a pretty unique opportunity of earning significant gains in the future.
- Keep Calm
Finally, the strongest antidote to sailing through a bear market is patience. You should make it a point not to react to alarming headlines. Media headlines will tend to amplify the dangers of a bear market, and as an investor, you should learn to ignore them. Instead, focus on your financial goals, have a long-term investment plan, and build your wealth slowly.
So, did you open a Demat account? Are you all set to invest in the stock market? However, is the market bearish in nature right now? Well, don’t worry. A falling market might seem disappointing, but it can be turned into a great opportunity if you have the right skills and know-how about investments. So, take each step with caution, be ready to face the unpredictability of the market trends, and take a leap of faith. Happy investing!
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Frequently Asked Questions
You can invest via SIP. During bear markets, when the Net Asset Value of funds decreases, you will automatically buy more units of that mutual fund. Thus, through SIP instalments, you will acquire more units of a mutual fund during falling markets.
Short selling is when the investor borrows a security and then sells it on an open market with an expectation to buy it back in the future for less money.
A bear position in the stock market is a term defining a short-term position taken on a stock or financial security with an expectation of a drop in its value.