A stocks market bear run is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative market trend to continue for a long while. In such a market, investors would anticipate losses and continue selling their securities at even lower prices, which contributes to further pessimism. A downturn of more than 20% in the market indexes for over two months, is considered a bear run in the stock market.
Investing in a bear market is usually very tricky as it’s usually difficult to know when the market is bottoming out or just having a small hiccup. Unlike a market correction, which is a short-term negative trend that lasts less than a month and often presents a great opportunity for investors to find low entry points, bear markets rarely provide any entry points. In most cases, buying in a bear market will be a case of catching a falling knife with only painful results to follow. The only thing to do in such a market is keep a level head and seek as much information as you can.
Good information is worth more than gold in a bear market and will help you a great deal in making strategic moves that will eventually grow your investment, even if it is only marginal growth. Additionally, diversifying into low risk securities such as bonds and treasury bills, which give low but sure (fixed) returns on investment. A well balanced investment portfolio in equities, fixed securities and money market (with less investment in stocks) will cushion your investments from losses.
As hard as it is to know when a bear run starts, knowing when it ends is equally difficult. There are some common signs that can signal an end to a bear run, such as if an upwards blip goes on for more than three weeks or the market index indicates a plateau for more than a month coupled with improved economic conditions e.g. reduction in inflation rate. These signs usually do not indicate certainty that the bear run has ended.
At the moment the, the NSE is showing none of these and the economic outlook, both locally and internationally is not very encouraging. It would be wise to assume that the market will be on a downward trend for the rest of the year. Investors are thus much better off holding their funds in cash and fixed assets that appreciate in value than investing in the stock exchange.
By Perminus Wainaina – Corporate Staffing Services Ltd