By High Net Worth—Bear Market Stock Investing
In my last post I covered some stages of getting started to investing in the stock market.
In this post I cover buying in a bear market and during and following a stock market crash.
Click here to read more trading and investing education from TabStocks
Read our stocks picks articles for free
Buying In A Bear Market—Is It Good Idea?
Generally, the best value and thus profits can be made when investors of stocks buy in a bear market.
Buy the fear. But do it at the right time and buy the right stocks.
There Are Three Stages That Make Up A Bear Market
Entering A Stock Market Crash
- Stocks have crashed and may continue to fall in stages. Think of these stages as aftershocks. Upon a crash after it has occurred this is the best time to load up using most of your funds.
But you’ll want to reserve funds (at least 25%) for aftershocks because you will get better value.
Now you may think of buying only during aftershocks.
Well while aftershocks do almost occur following the main crash, sometime they are not big drops following the crash therefore you’ll not gain much value in waiting to buy.
Still it’s worth holding some money back, ready to buy just in case each stage of the aftershocks is significant where you can gain better value as you average down.
So long as you have diversified, you almost certain, close to guaranteed to make a very nice stock market profit.
You could pump the lot into a stock market tracker fund. Or part buy into a tracker fund.
But true value comes from searching for stocks that have dropped a lot more because the stock market sector those stocks belong to have been highly impacted.
Every crash is different;
because, and they affect one or more sectors. Take the lockdown pandemic for instance.
The price of oil dropped to all time low and along with it many oil companies and connected companies to the oil industry.
Retail stocks were also hit, and office space, and restaurants, outside dinning out establishments.
But also many other sectors, if not all sectors at least at first. Once people understand that other stocks will do better because of the coronavirus then those stocks will be the first to rise.
Therefore Amazon, online deliveries including food. And most online businesses.
If you have bought a range of stocks;
even if you did not work out in time what sectors or stocks will recover sooner and where you can make the most gains, and the fastest gains, you will still get value over all, even if you have to wait for them to recover which may take a long time or very long time.
In the worst case scenario one or more of the companies you have investing in go bust. You should be able to claim any those in your tax returns. Which is why it’s important to invest in a tax free stocks and shares ISA or similar tax free investing stocks portfolio.
Try not to buy during a crash;
i.e. in the very early stages when prices are still falling, because the crash is not over, and if it turns out to be a big stock market crash like corona caused then better value will be in the waiting.
I know, you may have itchy fingers and can’t wait to tuck in an place buy trades. But believe me, it’s better to sit back and let everything play out.
Things normally claim after a few days. This is the best time to buy big. Sometimes the stock market might left most stocks higher, but then drop again, like a dead cat bounce.
And this is when aftershocks can and do begin to occur. Not always right away, maybe within days, or weeks, months and even years for some stocks.
But you need to be ready to buy the right stocks and the right time. This is what wise investing is all about.
Do it right;
and you’ll make a lot more than the average 5-8% annual gains the best of long term investors make buy investing on high paying dividend paying stocks and in tracker funds.
Deep Into A Stock Market Crash
- You can’t always buy the bottom. Stocks can and do fall further, maybe following a stock market crash or maybe it’s an individual stock that has slowly been falling, like a slow motion crash. These can be more tricky to deal with.
Try to target top stocks because top stocks are top for a reason.
You may find what seems like bargains, but it’s normally because the companies are in trouble, not just because of a stock market crash, but because sales or low, dropping or not rising as fast as private investors hope.
Maybe the company is not managed correctly, wrong decisions being made. Whatever the reason, if the company is going to survive it may take a very long time.
If you happen to have bought such a stock or stocks, the best thing to do is wait for it to recover even if it take a years.
At the end of the day the best strategy is to ignore those stocks that are falling.
If you keep focus on them, you will adopt fear and will not even buy top stocks. Fear will turn you off of investing in stocks, in the stock market altogether.
In the worst case scenario you will sell your shares at a loss and odds on after you do most stock end up rising again and may even rise higher than what you had paid.
Thus you will be missing out on potential future profits.
Rising From A Stock Market Crash
- You know, some investors may say it’s best to buy when stocks begin to rise. But remember what I right above, if you buy at this time you maybe buying into a dead cat bounce and prices can fall even further during the aftershock stages.
So what should you do if the stock market is rising, the range of stocks you have your eye on are beginning to rise.
Well generally stocks that are rising and will continue to rise do so slowly. When stocks rise in a dead cat bounce situation, they do suddenly and it’s a group think type of reaction.
All sectors seem to rise at the same time.
Most recoveries occur over time and in each stocks own time. This will reflect in the different sectors.
Each sector will rise at different times;
some before others. Thus one good indication that it’s a dead cat bounce is when all sectors rise at the same time and suddenly.
Therefore it is wrong to buy when stock begin to start rising. It is better to buy after the crash when the market has settled and following each aftershock following the main crash.
However if stock have begun to rise following what appears to be the last aftershock then it maybe a good time to buy.
You will know that the last aftershock has occurred across the stock market when the market has gone sideways for a number of weeks, or months following a crash.
Depending on the type of crash. The worse the crash in terms of global impact and moreover sector impact then the longer it will take for a proper recovery.
If the crash is not serious then recovery will occur sooner, and before that aftershocks will be less and will not last long.
You can’t always buy and the rock bottom. But you can buy post stock market crash after most of the fear has taken place.
If the stock markets are rising
overall and top stocks are rising they will drag along most of the stock under them.
Therefore so long as this rise is occurring in stages, it’s thus likely that it is a genuine recovery and not a dead cat bounce.
Forget using candle sticks. Use common sense. Watch the range of stocks you have bought or want to do. Watch the news. Leave the candle sticks for those who cannot workout when is the right time to buy or sell.
In my next stock market lesson I’m going to address when is a good time to sell a stock once profits have been made. Subscribe to this site to be updated of new posts.
Click here to read more trading and investing education from TabStocks
Read our stocks picks articles for free
If this information has been useful to you, kindly consider making a financial PayPal donation to support our work in continuing to provide you with free quality content.
Disclaimer:
We have taken reasonable steps to make sure that any information on this website is accurate at the time of publishing. Any opinions expressed are the opinions of the author only. The content on TabStocks.com is not recommendations to buy or sell. We do not give personal financial investment advice and the information on this website and via our email newsletters should not be taken as us giving any individual or organisation such advice directly or indirectly. You should do your own research and due diligence before trading or investing or speak to an independent qualified financial adviser. Do not rely upon the information on this website or via our newsletters when making an investment decision. No liability is accepted by the author, TabStocks.com or its Officers for any investment loss, or any other loss or detriment experienced by any individual for any investment decision, whether consequent to, or in any way related to the content on this website and/or information in emails from this website.
