No even the most experienced investor is immune to the impact of market downturns, which can often drastically lower the stock prices of many companies, leaving investors to wonder what they can do to not just survive, but even better, to prosper when a Bull market is replaced with a Bear.
The smart investor recognizes downturns can not only be a reality, but also a potential opportunity for one to make money if they know how to recognize and capitalize on the market shift.
One way to best take advantage of a downturn is to buy stocks at heavily discounted prices, such as those of well-established companies that are prepared to ride through the storm. If prices go up, great – investors can enjoy a healthy return on their investment. If prices remain the same or even fall further, investors can keep repeating this process until stock prices have risen back up.
Another sound investing strategy during a market downturn is to short-sell stocks. This involves predicting that a stock’s price will drop and short- selling (or borrowing) the stock that one believes will fall and then selling it, hoping to repurchase it later at a lower price and pocket the difference.
Diversification is also a big factor in mitigating potential losses incurred during market downturns. By investing in a variety of different stocks and industries, one can reduce the volatility of one’s portfolio, spreading the risk if one or more particular stocks do not perform as expected.
Furthermore, keeping tabs on the latest news and events that involve the economy and companies you’re invested in can greatly improve your chances of forecasting where the market will go. Investors should have a good feel and knowledge of the market and which way it may move next.
In summary, market downturns can potentially lead to great opportunities for investors who are able to use the right strategies to help them not just survive, but also find ways to prosper during these periods. Having a good understanding of the stock market and a solid investing strategy is key in making the most of these types of situations.