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Should You Fear a Bearish Market?

Bear Market can be a fearful event for many investors, especially those who are just starting their investment journey. When the stock market declines for an extended period, usually losing the value of 20 percent or more over at least two months, investors call the event “Bear Market”.

When this occurs, many investors try to sell off their stock to limit their loss. As a result of this, the market goes more and more downward. The decline of your stock prices can be shocking if you are new to investing. But should this be frightening? Or can you save yourself from downfall by following the best investing strategies in a bear market? Let us find out more details to tackle a bearish market.

Bear Market – What are the Reasons?

A decline in the stock market can occur due to any of the following reasons:

  • A sudden or catastrophic situation
  • Decreasing profit of the corporates
  • A revision from an earlier bubble of stock overvaluation
  • A crisis in one industry, which can affect other dependent industries
  • Anxiousness among the investor at any stage

A bearish market can be frightening at times, and it can scare away many investors from investing. Most importantly, no one can predict when the market will be stable once again. It requires the psychological, analytical, and financial will to go forward in the storm.

No financial analyst can accurately predict when a bear market will occur. But based on historical data, a bear market seems a natural phenomenon for a stock market. A bear market can be scary; there is no doubt about it.

However, should you fear a bear market that much? Let’s analyze it now.

Bear Market – Impact on Short-term and Long-term Investors 

When a bear market occurs, the price of securities drops drastically. This phenomenon can happen suddenly due to any reason mentioned above. As a result, the value of your portfolio also declines in price.

If you are a short time trader, a bear market can be a disaster. Moreover, if you are in a dire situation where you require money, it can be worse. As short-term investors prefer to generate revenue out of short-time fluctuations in the market, a bear market is a scary occurrence for them.

However, if you are a long-term investor not planning to sell your stocks to generate money immediately, then a bear market should not be so fearful for you. When stock prices are down, long-term investors see it as an opportunity to buy stocks at a lower cost.

As long-term investors (also known as the value investor) invest their money for a longer time frame. A bear market can be a chance to increase your returns. This way, you will buy more stocks when the stock prices fall and buy less when the bear market eases up.

How to Limit Your Loss During a Bear Market?

Now, if you have started your investment journey, you can follow multiple approaches to limit your loss during a bear market. Firstly, choose stocks as per the underlying operational quality of a business. Look for its ability to generate revenue over time.

These are the businesses or industries, which will flourish in the next few years. A bearish market may currently limit the stock price of this company. But you may observe a better price very soon.

A bear market is only scary when you need your money immediately. If you are looking for a long-term investment, the bear market can be the perfect time to reassess your financial portfolio.

Are you a short-term investor? Use various technical analysis tools to understand which stock you should invest in to limit your loss during a bear market. If you can rebuild your portfolio, the bear market won’t be the nightmare you thought it to be.

Conclusion

As for our initial concern, should you fear a bear market? The answer can be both yes and no.

A bear market is scary, but it is not unnatural in the stock market. You can follow ways to limit losses and strengthen your portfolio by reassessing the situation. Capture the plus points of a bearish market and utilize them wisely to get rich in a bullish market.

See the positive side too! The possibility that you can buy some valuable stocks at ridiculously lower prices right now. You can’t evade bear markets, but you can prepare for it. When a bear market occurs, it’s time for you to show patience along with finding the right level of your risk profile, and so on.

So, the next time you encounter a bearish scenario, don’t fear it, be calm and embrace it by using your smart analytical skills. What are you waiting for? Go and plan your investments wisely.

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