Why we need to adopt a bearish investment strategy to succeed in stock market


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At the best of times the stock market is a volatile creature, it can drop in a matter of moments and wipe out billions of pounds worth of stock; as well as creating billions a few moments later. The economy has been slow to recover from the 2008 recession and there are already rumors of a new dip or recession.

The standard approach to investing is to adopt a bullish approach; this is where the share prices are rising and confidence is high.  However, due to the volatile markets and potential downturns it may be more prudent to adopt a bearish approach.  A bear market is one in which prices are dropping and there is a negative feel to the economy.  This decreases investing and creates a self fulfilling scenario. There are several reasons why adopting a bearish approach may be the best course in the current market:


Unfortunately, downturns come with almost no warning and happen fast. You must be confident in your market knowledge and up to date on the market to ensure you grab shares quickly as they bottom out. If you delay to calculate too much, then you will miss the low prices and catch them on the way back up.

Risk Reduction Strategies

The most common reaction when the market dips is to look at what alternative investments are available. Whilst the market switches over and brokers advise on the next best alternative your money is doing nothing! The most important thing in a downturn is to stay invested; make the most of your current investments. The lower risk alternatives that brokers often suggest do little to alleviate your risk and will reduce your returns; particularly if many people jump on the same bandwagon.

Cash Investing

Cash is the obvious and safe alternative to stocks and bonds, particularly as they start to lose value. Cash is a lower risk, safer approach which allows you time to assess the market and your options. You can do this calmly and with all the necessary information in front of you rather than being swept up with what others are doing or following your emotions. Having cash available also means that you are in the best position to buy the low priced stock as it hits the market.  It also avoids you having to worry about whether to hold low share or sell them low and make a loss; in order to get some of your funds back.

Stock Fundamentals

Normal investment times make forward earnings and the growth potential of shares a good place to invest. However, when the market starts to drop these types of investment, are not as good as they were. This is simply because of a loss of confidence; the lack of people investing in them creates an uncertain environment.  This makes it essential to reduce your own holdings in these areas of the market.

Screening the Market

It is incredibly difficult to screen and locate trends in a bearish market, this is for several reasons:

  • The data concerning earnings and growth in the market is unreliable; the accuracy of the information is unlikely to improve whilst the market is down.
  • High yield items, such as dividends are exceptionally risky.  High yield items are inherently risky and the higher the return on your investment in a down market the more likely it will be to encounter problems. A company can simply not guarantee a dividend value and continue to be competitive and cover all overheads.
  • Low price picking is not the best solution. The market had gone downwards and is likely to go down further. This means that the usual assessment of low prices is not valid as there will be many businesses struggling with exceptionally low share prices and no guarantee of bouncing back.

The bearish market requires a cautious approach, the tactics which work in a bull market will not be of any benefit. If you want to succeed, you need to get proper advice or risk analysis software. Talk to an experienced broker, and he will help you select the best strategy to succeed in the stock market.


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