Opportunities Available In A Bear Market

While some investors panic, others who have come to terms with this market respond to it in ways that cause them to gain from it.

The bear market is the market phase most investors dread. You will too, as it is characterized by falling stock prices owing to market dynamics and environmental/ economic conditions.

This is the period where investors panic, worry, and sometimes take emotional decisions that are more often than not wrong moves. However, in the middle of this frenzy, there are investors who don’t just make money, they do it well.

As the saying goes, “some see problems, others see opportunities.” Just as the African continent is burdened with myriads of challenges, it has also proven to be one of the biggest continents in terms of the opportunities available.

The same applies to the stock market. While some investors panic, others who have come to terms with this market respond to it in ways that cause them to gain from it. As opposed to “sticking your head in the sand” and pretending it’s not happening, this presents a time to leverage the current trends of the market.

Purchase New Good Stocks/ Share Repurchases

A great place to start is to find good stocks to buy. The truth is that in a bear market, the prices of most stocks go down whether they are good or bad. While bad stocks will stay down, good stocks will always bounce back up.

This idea has you moving at the opposite side of the crowd. The normal reaction in a bull market is to sell, however, there is really no sense in selling when the price is down unless you are sure that is the death of it forever and your only option to cut losses. The funds available for share repurchases will now be able to purchase more.

For example, let’s say the price of a stock was ₦50 yesterday and it becomes ₦20 today. Assuming you had ₦1000 to repurchase the same stock, as opposed to obtaining only 20 shares (1000/50), you can now obtain 50 shares! (1000/20).

Thanks to Naira-cost averaging, the long term effect of this growth will have you netting off even future losses as the average cost of your shares will now be less.

In other words, a bull market helps you acquire more shares through reinvested dividends and share repurchases. You now have more shares in your favourite company.

Get Dividend Income

Another opportunity lies in dividend stocks. Many times, even when the price of the stock goes down, the company is still strong, still making good profits and still paying good dividends to its shareholders. This presents you with an opportunity to purchase dividend stocks if you are interested in having a little bit of dividend income as part of the gains of your investment portfolio.

Short Bad Stocks

On the flip side, when you know a stock is bad, it is only normal that it will continue to plunge in a bear market. This gives you an opportunity to profit from the decline.

You can take a short position on the stock and profit from the further decline. Short selling is simply a trading procedure that involves borrowing the shares of stock from the investment firm to sell to another investor.

Do Nothing

The truth is that in a bull market, one of the best opportunities available comes without you doing anything. If you are investing for the long-term, by doing nothing, you still hold your position for a rebound as it most probably will come.

Jumping against the tide to purchase shares is great but for an inexperienced investor that doesn’t have the analytical sense to determine what stocks are opportunities and which are even deeper trap, the best opportunity is to watch and wait.

The idea is that if you are really more interested in the long-term gains, short-term losses will not mean so much.

Written By Lawretta Egba