The slowdown in India’s economic growth and weak corporate earnings has raised so many concerns. As of now, the Indian stock market has been the worst-performing market so far this year. And it is believed that the weakness will still continue and keep Indian markets Indian financial market under pressure for some time. As a result, the bears have been controlling the Indian stock market from quite long-time, leaving stock investors with no other option either to wait or sell stocks at low prices. However, the market has recovered but what if it hit again?
Fortunately, bear markets tend to stay shorter than bull markets so if you plan-wisely and diversify your portfolio properly, you can get through it. In fact, you can benefit from the bear markets and make more long-term wealth-building.
Here, we’re going to discuss some best practices for making profits in the bear market which are as follows:
Search for Good Stocks to Buy
In the bear market, the stocks tend to go down whether the company is good or bad. But, the speciality of a good company is, it recovers and gets itself back on the track. So, the first thing you can do is to find out stocks of such companies. To do so, you will have to do some basic research on companies past performance, business model, balance sheets to check for debt, and other metrics.
Think of it as an opportunity of buying the stocks of good company at a low price.
You need to know that dividend and stock price do not relate to each other, not really! It is because the dividends come from the company’s net income which distributed to the shareholders period. If a company is good and still paying a dividend even after the stock price goes down then the stock of such company could be a really good investment to invest in quality stocks and receive timely dividends even in a bear market.
Check for Bond Ratings
Bear market and economic slowdown are related to each other. During the slowdown, the debt pressure increases over the companies and the company who can handle this means, the company has the potential to recover and continue growing in the future.
To get to know better of this, check for companies’ bond ratings which basically tells the company’s creditworthiness. The higher the ratings, highly-safe it is to invest in the stock of a company. In terms of creditworthiness, ‘AAA’ is the highest bond rating which signifies the company is less risky to invest in.
So, if the market is in control of bears and economy is in bad shape, and if you see an ‘AAA’ rating of a company then the company is worth to invest in.
Short on Bad Stocks
Like we said earlier, the stocks of both good and bad companies tend to go down in the bear market. The stocks of good companies do recover but the stocks of bad companies keep falling, giving you the opportunity to short when they decline further.
The strategy to short is quite good but a risky one since you will be exposed to unlimited losses. Alternatively, you can go for PUT options to make profits from falling price and limit your losses at the same time.
Above all, have patience. If you are looking forward to 10 years from now then you don’t have to worry about the short-term volatility and focus more on your financial goals. A bear market shouldn’t trouble you much. So, don’t rush into making rash decisions about selling stocks in a bear market. Instead, keep invested and wait for the bulls to return. If the company is good then hold the stocks and look towards the long-term horizon.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.