Modules for Beginners
Navigating Bear Markets
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How to not panic in a bear market
With this chapter, we’ve reached the end of yet another module of Smart Money. Since we’ve dealt with almost all of the important aspects of bear markets, we’ll wrap this module up by taking a look at a few things that you can do to not panic during a bear market. Remember, bear markets are just phases in the stock market and that they don’t last as long. With this advice, let’s start the final chapter of this module.
How to not panic in a bear market?
In spite of your best efforts to stay rational during a bear market, it may not always be possible to keep your emotional side in check. Emotions are powerful, and they will always try to sneak past your rational side and influence the decisions you make during a bear market. However, with the following suggestions, you can, to a certain extent, prevent anxiety and panic from setting in and taking over your objective outlook.
1. Invest judiciously
One of the primary reasons for emotions like panic and anxiety setting in during a bear market has to do with the amount of capital that you put in. Investing all of your life’s savings, or even just putting in a huge chunk of your money in the stock market, is bound to make you panic when the going gets tough during a bear market.
That’s why it is important to limit your investments only to as much as you can afford to lose. For instance, if you’re okay with putting in Rs. 10,000 and still not worry about losing it, it’s a good idea to limit your investments to that amount during a bear market. This way, even if the stock market moves unfavourably and you end up losing your investments, it won’t burn a hole in your pocket and you will be left relatively unscathed. And since you’ve only invested leftover, idle money, your emotions are not tied to it. This makes it possible for you to make level-headed decisions.
2. Stop looking at your portfolio all the time
A great way to save yourself from getting flooded with panic and anxiety during a bear market is by refraining from looking at your investment portfolio too frequently. During a bear market, stocks tend to be volatile and can go through wild swings in price. Constantly monitoring your portfolio at such a time would only serve to derail your emotional state and can even lead you towards making irrational investment decisions.
If you already have an investment strategy in place, then it is best that you stop checking your portfolio all the time, and let your strategy do what it’s supposed to, at least until things calm down for a bit. That said, you can check your portfolio periodically, at a weekly frequency, perhaps, to check if you would need to make any adjustments or even rebalance your portfolio.
3. Don’t dwell on your actions (or inactions)
A bear market can be brutal. Since a number of developments may occur rapidly and in quick succession, it may not always be possible to take the right action at the right time. And considering the fact that you cannot predict market movements, it is of no use pondering over what could have been done or what should have been done, in hindsight.
Dwelling on your actions, or even your inactions, can turn extremely counterproductive since it can mess with your emotional state. It serves nothing except stirring up feelings of regret, anxiety, and depression in addition to panic. You and your mental health would be much better off leaving things in the past and not looking back at them.
4. Have a long-term outlook
Although short-term investment strategies can be lucrative and bear fruit, it is a better idea to approach the bearish stock market with a long-term outlook. This is primarily because of the fact that the chances of suffering a loss are far lower when you have a long-term outlook. In addition to that, you can also eliminate the need to constantly monitor the performance of your portfolio.
This will help preserve your mental health and also prevent you from going into panic mode every time the market doesn’t move in your favour. Also, as you’ve already read multiple times in the previous chapters, the stock market always recovers from bearish trends at one point or the other. Bear markets do not last forever. So, holding on to your investments for the long term allows you to safely ride out the bear market without having to book any losses.
5. Don’t pay heed to the news
With the advent of 24/7 news channels dedicated solely to the stock markets, many investors and traders seem to spend much of their time following the various news snippets in anticipation of stock trading tips. While that’s not a bad idea, spending too much time watching the news during a bear market can do more harm than good.
In fact, watching the news or reading about the various stock market articles online during a bear market only serves to disturb you further. So, the next time you’re compelled to switch your TV on for a quick runthrough of the current market scenario, take a breather, resist the temptation and focus on something else instead.
6. Use relaxation techniques
In spite of following the above mentioned techniques, if you still find yourself stressed out and in a constant state of panic, the best thing to do would be to employ relaxation techniques. Meditation, yoga, and deep breathing exercises are a few of them that you can use to calm yourself down. These time-tested techniques can do wonders to both your physical and mental health.
They can help reduce your blood pressure, deal with chronic stress, and manage insomnia and anxiety. That’s not all. When you’re in a relaxed state of mind, you’re also more likely to make objective investment decisions without giving into any psychological biases. Relaxation techniques also give you a lot of clarity and help you organize your thoughts in a much better manner.
Bonus idea: Take the help of an expert
While managing a bear market by themselves may be easy for expert traders who have seen many bear runs, beginners may often need the help of an expert to navigate these tough times. If you find yourself in that spot, don’t hesitate to reach out to a financial advisor or a stock market expert. They have the experience required to guide you smartly through the bear market that’s giving you sleepless nights.
With this, we’ve come to the end of this chapter. Before we leave, here’s something that you should always remember. Bear markets are tough, there are no two ways about it. But perseverance is the key here. If you can ride out the bear market patiently, you might just be able to enjoy the fruits that come with the succeeding bull market.
A quick recap
- It is important to limit your investments only to as much as you can afford to lose.
- Another great way to save yourself from getting flooded with panic and anxiety during a bear market is by refraining from looking at your investment portfolio too frequently.
- Dwelling on your actions, or even your inactions, can turn extremely counterproductive since it can mess with your emotional state.
- Additionally, although short-term investment strategies can be lucrative and bear fruit, it is a better idea to approach the bearish stock market with a long-term outlook.
- Watching the news or reading about the various stock market articles online during a bear market only serves to disturb you further.
- In spite of following the above mentioned techniques, if you still find yourself stressed out and in a constant state of panic, the best thing to do would be to employ relaxation techniques.
- Taking the help of an expert can help too.