Bearish Market: How to Face It?
Updated: Apr 7
When it comes to investing, being able to identify and analyze the market’s trend is crucial. It helps us to choose the right decisions. When a market is trending, it is primarily moving in one direction, either up or down. The Professionals in finance regularly use labels like "bull" or "bear" markets to describe uptrends and downtrends. These terms can also be used to represent the investors’ feelings about the market and the ensuing trends.
In simple terms, a bull market refers to when the market is on the rise. In the opposite, a bear market is considered to exist when a market is on decline. Typically, a bull market occurs when prices rise 20% or more from a bottom and a bear market is considered to be a price decline of 20% or more from the recent high.
Nowadays, we are now facing a bearish market because of the Global Pandemic caused by the COVID-19. In the chart below, Jakarta Composite Stock Price Index dropped 27,95% YTD by March 2020 (IDX Quarterly Statistics 2020). This event can be considered as a bearish market.
Source : IDX
A bear market often occurs just before or after the economy moves into a recession. People often illustrate a bearish market as a bad market situation and many people didn’t like it when we were faced with the bearish market, like in 2008. In the midst of this fluctuative situation, what should you do? Here’s some tips for investors to face the bearish market :
Think Beyond the Current Market
When we think about bearish markets, It's hard to predict how long a bear market will last, and in some cases, they can be quite drawn out. As such, don't invest in a bear market with the hopes of buying low and getting rich within the year. That's unlikely to happen.
Instead, take a long-term approach to investing, and assume that any stocks you buy now are stocks you'll continue holding for a number of years. Incidentally, that's a smart approach for stock investing in general.
2. Don’t Attempt Time to the Market
Timing the market is generally an ineffective investing strategy, because market timing is something that is difficult, or nearly impossible. In this case, you can use a strategy called Dollar Cost Averaging.