Post by capitalstars Equity tips on Mar 4, 2016 19:04:56 GMT 8
Bearish periods are notorious for upending traditional investment strategies. Therefore, maintaining bullish attitudes and approaches is usually futile in a downturn. Instead, we need to adopt a bearish investment strategy to succeed in this stock market.
First: Be fast
Downturns occur quickly. Therefore, investment success requires speedy shifts. Waiting for more information or for the dust to settle are common traps for being caught in the downdraft, then missing out on low-priced opportunities.
Second: Reject “sophisticated” risk reduction strategies
Following a sharp drop that falls well below the “buy on dips” level, a common reaction is to reduce portfolio risk by investing in alternative strategies, funds and issues. Wall Street’s and advisers’ attempts to fulfill this desire typically end up producing confusion and disappointment.
The key problem is trying to allay down market worries while staying fully invested. Currently, Wall Street and advisers are offering “lower risk” solutions that include “low-vol” (low volatility), “alternative,” “hedge fund-like,” and “option strategy” funds and approaches.
The problem? While they do “succeed” at watering down returns, they do a poor job of alleviating risk (both actual and mental). The reason for the poor showing is that the designs necessarily have myopic strategies – holding fewer traditional issues in a less diversified portfolio. Worse, whenever such strategies become popular, poor outcomes are the result.
Third: Invest in some cash
When stocks or bonds produce losses, cash is the clear winner. Additional benefits from holding cash are:
A calmer demeanor that allows making better decisions and avoiding emotionally driven mistakes
The funds for buying attractively priced investments
That last point is especially important. The best route to investment success is to buy low, but that takes cash. Moreover, without cash, fully-invested investors face the hold-low or sell-low choice, an anxiety-ridden dilemma.
Fourth: Reduce importance of stock fundamentals
In normal times, forward earnings and growth potential are important fundamental stock measures. In bearish times, however, they become weak – not because they are ignored, but because the concerns and uncertainties around the fundamentals reduce confidence in the numbers, themselves. Moreover, economists and analysts are slow to adjust to a negative outlook scenario.
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