The Smart Investors

A bear market is characterised by falling share prices over a prolonged period. The stock market index drops by 20% or more. To most investors, the bear market causes pain and panic as values of their portfolios drop dramatically. But a few investors see the bear market as an opportunity to buy because it creates lots of good quality but undervalued companies.

The following strategies will help you profit from a bear market:

Sell at the beginning of the bear market
One strategy to adopt is to sell those stocks that are trading at hefty premium to their fair values in the first few weeks of the bear market. You should not sell when the bear market is already advanced because you would incur losses as there would have been a dramatic fall in prices.

Buy good stocks that are trading below their fair values
You are not just buying because the prices have dropped. You are buying quality stocks based on a thorough research of the fundamentals of the underlying companies.

Go for long term
In the short term, the market prices of shares are driven by fear and greed. In the long term prices are moved by values. You have the opportunity to make a good return if you invest in companies with good prospects for the long haul.

Relax and do nothing
If you cannot find undervalued stocks with good prospects, don't bother to buy. Buy only stocks with sufficient competitive advantage- they do well in good and bad times.

The bear market presents an investor with the opportunity to sell his weak holdings that are trading at a premium. He should hold on to the strong ones as they can easily weather the storm. Investors should not try to speculate when the bear market will end as no one can tell for sure. Just invest in good companies.

I think the bear market provides opportunities to buy more stocks because that's when the prices are down and that's when you should accumulate more stocks in your investment portfolio. It's also when you can sell overvalued stocks early and hold on to strong companies that have very solid fundamentals. That's another strategy that has proven to be the best over and over again.