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How You Can Make Money in a Bear Market ?

Investors have a natural tendency of buying in a bull market and selling in a bear market. However, this does not mean that there no buying opportunities during a bear market. In fact, a bear market may offer some really good buying opportunities, since there is a chance that markets have undervalued some stocks only because of the bearish sentiment.

Value investors always look for stocks that are trading below their intrinsic value. And most value investors will tell you that the best time to look for such stocks is during a bear market. This is because participants in the markets may not always act rationally. This results in investors dumping some genuinely good stocks during market downturn. These stocks would probably have strong fundamentals but investors sell them as the market sentiment is low. However, this offers a good buying opportunity. Because markets work in a cycle, long term investors can get some good bargains during a downturn and once the markets turnaround, which invariably happens, they can make a decent return.

Of course, there will occasions when a particular stock you are holding is seeing some huge sell-off. Again this may only be because the market sentiment is bearish and the sell-off is not justified based on the stock's fundamentals. In instances where you are confident that the sell-off is not justified, it is good idea to hold on to your investments and in fact even increase your stake since you may get a good bargain. Eventually when the market sentiment turns bullish, there is every chance that you will make a handsome return.

Another way you can make money in a falling market is by short selling. Although this strategy is a little risky, there are chances of generating some solid returns in a short time. However, short selling strategy should only be employed by seasoned investors because of the risks associated with it.

In the end, you have to be patient in a bear market. Markets work in a cycle. Eventually a downturn will be followed by a frenzy of buying activity. In order to make money in a bear market, you have to make buy and sell decisions that are justified fundamentally.