Generally speaking, a bear market is the great decline in asset prices of at least 20% from recent highs. Surely, this isn’t an exciting time however, fighting it may do more harm than good. Below are a few strategies and mindsets on how you can stay calm and play dead when the stock market crashes.
Keep Your Fears In Check
When you’ve been into stocks for a while you’d hear old investors say “The Dow climbs a wall of worry.” What this means is that over time the Dow has continued to rise despite threats like economic woes, terrorism and countless other calamities. The key to this is to leave your worries and emotions at the door when dealing with investment decision-making. So, when you feel overwhelmed and start to panic, keep nice and steady breaths, take a break and when you’ve calmed down, carry on.
Play Dead
In the midst of a bear market, the best thing you should do is to play dead. And no, not literally. It’s a financial term that means putting a great portion of your portfolio in money market securities that have high liquidity and short maturities.
Invest In What You Can Afford To Lose
Yes, when you get the perfect formula, you’ll end up with such a lucrative career especially if you invest in huge amounts. But always remember, that while it is important that you succeed, it is also imperative that you eat and keep shelter to live. It is unwise to take short-term funds and invest them in stocks. As a general rule, you should not tackle equities unless they have an investment horizon of at least five years or even longer. Bear markets and even minor slips in the graph can be very destructive to a fault.
Find Good Values
While it may sound like a bear market is a recipe for impending doom, it can also offer opportunities for investors. The trick is to be conscious of what you are looking for. According to Warren Buffet, bear markets pose good buying opportunities because valuations of large companies get hammered down along with the poor companies and the sit at very appealing valuations.