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11 ultimate money management tips that will help you navigate a bear market

Bear markets are part and parcel of investing. They can be viewed as a healthy rebalance back to equilibrium and shouldn’t be viewed as something super negative. Delaying it will cause more pain than good.

The problem is that many investors have gotten the hang of investing during good times but lack the experience through a bad market.

Here I hope that these tips would help them formulate their strategies and what they intend to do.

1. Know how you invest

Some investors that are new would listen to advice from all over the place. At the end of the day they get more confuse about things that they make wrong decisions or be too impulsive.

2. It is ok to listen but at the end of the day, know how you go about making your money.

Have a map on where we are helps

Some people look at long term price charts some people look at economic figures, but what they have in common is having an idea how the market is currently. You might not get it right 100% but it let’s you figure out how to tackle it.

3. Plan for good times, bad times and times when it’s ok

Mr Market will have it’s mood swing and you should be ready for it. If you are a trader, know how much loss your portfolio or account can take or what is your stop loss for each stock.

4. If you are strong holder of stocks, have a plan how you pick up new shares or which shares to divest.

A bear market is littered with many upward corrections

Many a times each up turn looks like the bottom only to disappoint. Identify what are the real reversals if you are good enough.

5. Cheap stocks can get even cheaper.

Many folks invest when the stock market is down 50% thinking that is low enough. But a stock like Cosco that went down from $8 to $4 can go to $2. To the person buying at $8 it may be a 25% loss but to you that bought at $4 it is actually 50%.

6. A bear market is also a bull market to others

Stock market move in cycles and a bear is not a taboo thing. It happens and people should prepare for it.

A market that is on a trend down could be taken advantage of either by shorting stocks, trading option puts or buying Ultra Short ETFs like Short Nasdaq, Short S&P 500 or Short Financials.

You can probably hedge your portfolio from potential big drawdowns through a Short S&P500, but you have to know hedging in detail before doing this.

7. Learn to take losses

Some people i know will not take losses because it seems to either say they have bad judgment call or that they believe one day the stock will recover.

Well there are stocks that bought in 1929 only to recover back to that levels in the 1950s. The question is are you willing to wait for so long? Are you certain you won’t do stupid things during this period?

For me taking losses is a form of risk management and acceptance that even with all the fundamental analysis i can be wrong about the way i view things.

It needs to be very discipline. I can have very high vindication on this stock but there is just this much that i can understand without good information or good mental model. I accept that and am willing to be wrong about things but at least I don’t end up being wrong with 20% of my total portfolio wiped out because of that.

8. Preserve your psychological capital

Its ok to lose money, but its never ok to lose your psychological capital. I have friends that can sit through 50% to 70% draw downs yet still make rational decisions. I am unable to do that I have to admit. But that is why i cut to the limits that I am comfortable with so that i can still make rational decisions.

Don’t keep thinking about your paper or realized losses. Assess what went wrong with your strategy and how to move forward from this point onwards.

That does the same to when you are doing well. Your largest drawdown could be in the future. Be vigilant and disciplined.

9. Stop blaming others and take responsibility

No one can be more responsible about your money other than yourself and rather than point to the US or Europe or Obama that is creating the problem. Idiots will come and idiots will go but if you know they are consistently going to do that, alter your game plan to ensure you factor in that idiots do make the decisions.

10. Identify those gems that you missed out previously

There will be alot of stocks that you wish you invest in but they are too expensive to invest then.

Apple at $380, Amazon at $202

Dividend growth stocks like Macdonald’s at $85, Coca Cola at $66.70.
Singapore stocks like Keppel, SembCorp Industries, OCBC, Starhub

You have a chance to get in at the price you always wanted.

11. Drive to improve your art furiously

The most important thing is that take this opportunity to hone your money management skill. Markets will come and go but these rules that you form will stay with you for a long time and they are not just good for bear markets but bull markets as well.

Humility and the yearn for constant improvement will bear fruits in the future.


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Monday 8th of August 2011

are you sure on what you are saying in this sentence? "To the person buying at $8 it may be a 25% loss but to you that bought at $4 it is actually 50%"

it is 75% loss.. not 25% loss


Tuesday 9th of August 2011

hi sen, if you put into context of what was said previously, the fall from 4 to 2 will only resulted in a 25% loss but you are right his total loss is 75%

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