What a glorious week for stocks....that is, if you are short the market. It has been tough watching the value of our stocks shrink so rapidly in the New Year. This is also the kind of market pros, like Warren Buffett, love to see because they can find good value stocks cheap. Mr. Buffett also has plenty of time to sit on these value stocks to wait for them to climb back in favor, which some people don't want to do. No one can tell you when the bottom has been reached and I certainly don't know when that will be, but it is a great time to research stocks and look for bargains.
There are several ways to play a bear market, to stop the bleeding without selling every stock you have and in some cases, even make money. I will go over a few, but by no means is this a complete list or do all of these strategies work all the time.
1. Inverse Stock Market Funds: You can buy mutual funds or electronic trading funds (ETF) that are inversely correlated to the stock market. They are usually tied to major indexes like the DOW, S&P500, Russell 2000, NASDAQ 100, etc... Basically when the index goes down, these funds go up. A few of the companies that provide these types of funds are ProFunds, ProShares and Rydex.
2. Options: These can be risky and complicated, but they are a way to hedge your bet in stocks. Most of your brokers should have information on them if you are interested.
3. Futures: Basically the same as Options, except with Futures you are obligated to fulfill the terms of a contract and with Options you have the right to buy or sell underlying assets at expiration. Again, these can be very risky and complicated to understand for the average investor.
4. Government Bonds: Not really sexy, but safe none the less in a bear market.
5. Defensive Industries And Companies With Cash: The non-cyclical companies will continue to have products purchased through thick and thin, so they are a safe bet in down markets. You will always be purchasing deodorant, toothpaste, shampoo and home cleaning products. It is also prudent to invest in stocks that have hordes of cash, which obviously helps in retreating markets.
Let's face it, making money in a bear market isn't easy, and our goal as long term investors is to weather the storm and take advantage of opportunities when we see them. It is not easy being the contrarian, but it can work to your advantage if you play your cards right. There is a reason why Warren loves markets like this and it is because he can build positions in cheap stocks for the long run.
About the Author
Scott Kibby President Levott LLC - Control Your Success www.Levott.net Email: Scott@levott.net
Thursday, January 24, 2008
Help in a Bear Market by Scott Kibby
Posted by Chukwuemeka Agwu at 7:42 AM
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