Bears don’t happen when the market is cheap. They happen when the market is expensive, overvalued. Most importantly bear markets don’t knock on the door before they come. The hardest part about bear markets is living through them. Many investors are consistently worried about their investments and tend to forget how to behave when it happens.
However, developing a good trading strategy and adopting a patient attitude is the key to surviving a bear market. As we all know investors’ emotions are their biggest enemy in a bear market. They can cause you to do and think irrational things. In this article are some important elements to consider in order to survive a bear market.
But first of all, what is a bear market?
According to Investopedia :
“A bear market is a condition in which securities prices fall and widespread pessimism causes the stock market’s downward spiral to be self-sustaining. Investors anticipate losses as pessimism and selling increases. “
Now here are some things you can do as an investor during a bear market :
1. Review your portfolio
The first thing any investor should do in a bear market is to review their portfolio. Not even the best investor in the world is immune to making bad investment decisions. The bear market usually gives you a visualisation of your best and worst performing assets. However, remember that a falling stock is not necessarily a bad stock. Most of the time, stocks that have been overvalued during bull markets tend to re-adjust in value during bear markets. There are plenty of projects who have made it through bear markets and have actually surpassed their previous all-time high prices. Therefore, if you are a strong believer in the project, the bear market is usually the best time to double down on your investment.
2. Do more research.
The bear market also offers the opportunity for any investor to do research on the projects in which they are invested. Researching properly is a skill that is acquired through work. Just like miners who are able to find gold or diamond, it is very strenuous and requires deep focus. Eventually, this skillset becomes rewarding and you’re then able to find undervalued projects with great potential.
Also, as an investor, understanding the market and its cycle is important. Not only that, but it also puts you in the mind of a real investor. It allows you to understand the key players in the market and leads you to make better investment decisions while understanding its impact on your portfolio. The effort that is put into being an investor is not minimal. At least it’s not if you ever hope to make money in it without relying on luck. You must act as a detective and thoroughly research everything you are stepping foot into. It is almost similar to walking on a landmine.
3. Have realistic expectations
The bull run craze last year definitely set some pretty high expectations in almost every crypto investor. There is nothing wrong with hoping for the ‘best’ from your investment. However, a golden rule in investing is staying grounded, or you’ll be headed for some real trouble.
If the market is down 20%, expect to be down 20% if you hold some of the larger stocks in the market. If you have riskier investments, expect your portfolio to be down even more. While no one wants to lose money, to lose less than the market when it is going through a correction is a good thing. It means your investment strategy is protecting your portfolio.
For instance, during the crypto bull market, it was not unusual to see more than 100% increase in price in a relatively short time. However, believing that this increase will be a constant scheme and will happen every time is a huge mistake. During the year, we’ve seen many of those projects lose up to 90% of the value they had during the bull run.
In hindsight, the market at the time was very overvalued which led to having unrealistic expectations as investors.
4. Do not expect to sell the top and buy the bottom.
This is just not possible. For one thing, the tops and bottoms are only clear in hindsight. Professional investors have a variety of tools they use to determine when to buy and sell, and I can assure you, no one has a tool that tells them where the tops and bottoms are.
What you want is to have a clear trading strategy and maintain it for most of your investments. A very tactical strategy is to actively buy and sell your investments. To connect to my earlier point, always remember to take profits and not have unrealistic expectations before selling your asset.
Bear markets feel like they are going to last forever, but they don’t. If you stay with good, quality investments, you should make it through all right. That doesn’t mean your investments won’t go down in value during a bear market, but there are numerous companies that have been around for decades that have seen several bear markets and have lived to grow bigger and stronger.