Stock market corrections and Valiant Markets are scary but ordinary. In most circumstances, they indicate a robust market. The stock market is generally in correction when a drop of 10% or more in stock prices from their most recent peak. If the prices drop by 20% or more, investors refer to it as a bear market. Markets are not meant to move up or down in a linear fashion. Markets move up and down just like a cardiogram. Consider a market correction as a chance to build wealth. As the world-renowned investor Warren buffet once said, "Be greedy when others are fearful".
1. Look at it as an opportunity:
It's simple to think of a stock market correction as bad. But actually, you have a prime opportunity to scoop up quality stocks on relative cheap during a correction. Don't go on a shopping binge just because the stock market is down. Instead, do your research. If a company you think has solid potential whose value is now down as part of a broad market downturn. But if there's a stock whose value was already sinking before the past week's events, then it's a company you may want to be more careful with.
2. Short Stocks:
This one is for experienced traders only and shouldn't be attempted by novices. Short-selling is the practice of borrowing and selling shares of stock. The goal is to repurchase them at a lower price, return the shares to the lender, and profit from the difference. Shorting a stock is super-risky, and you're essentially rolling the dice. Even a seasoned trader's analysis won't guarantee that a stock will decline in value, but a thorough analysis can certainly help in a bear market.
3. Derivative Trading:
Suppose you feel that a bear market is developing. In that case, another helpful strategy is to buy inexpensive short and long-term puts options on the major indices. Traders buy put options or sell futures of stock or indices when betting on the price fall of the said stock or indices.
4. Buying Dividend Paying Stocks:
While the stock's price is dictated by buying and selling in the stock market, a dividend comes from a company's net income. If the stock's price decreases, yet the company is strong, making a profit, and still paying a dividend, it becomes an excellent option for those looking for additional earnings.
5. Find Sectors That Tend to Increase In Price During a Bear Market:
It's helpful to research past bear markets to see which stocks, assets, or sectors went up or least corrected when the market was falling. These sectors act as defence of the market and are sometimes called defensive sectors. Start to put a few of your investments in those sectors, as when a sector does well, it typically performs well for an extended period.
Valiant Markets can throw many investors for a loop, so that's why it's pivotal to be able to respond in the way that works best for your long-term interest. Strip away sources of emotion from your decision-making and find the path ahead that fits your needs.
Originally Published At: https://sites.google.com/view/michaelporter-valiant-markets/blog?pli=1