The most painful part of the bear market may be in front of us. This could be the last leg of the bear. Stock prices start falling because there are no buyers left. The last of the bulls will slowly sell off. There is a complete disconnect between 'value' and stock prices. Many blue chips start selling for what may be handsome value in normal times. But, these are not normal times. Slowdown, recession, destruction in asset prices, become commonly used words. Even this phase will end, but we do not know when. It could be six months, or it could be three years.
How do you cope up in environment of pessimism ?
If you own stocks, switch from momentum stocks to blue chips. Try to create marketeable lots, meaning lots of shares equal to their futures lots. (Example: 1 future in Reliance Capital is 138 shares. if you own Rel Cap, try to make your quantity equal to 138). once you have such lot sizes, consider selling calls against your equity holdings to reduce the cost of your investment.
If you are in cash, either wait for a base formation, or buy small percentages of your available cash in panics, say 5% every time there is a dip.
Comments to this post :
if the bear markets are to terminate six to eight months from now then satyam @225, kotakbank @ 350, Dlf @ 175, Nifty @ 3175 is a possibility. Do you agree?
Yes, this is possible. We are in a bear market. Prices will move lower. We have no way of saying when the down trend will end. Maybe now, maybe later. The bear market is assumed to continue until reversal signals come in. Such signals have not yet been seen.
Gold & crude going downside, generally it has been observed that when it goes down indian mkt goes up, but now a days no co-relation exist, whats your view ?
I can only repeat what the economists are saying. Commodity prices are falling due to 'demand destruction' , meaning a slowdown or a recession in the western economies. Therefore, our stock market is under pressure since we are likely to be affected by any world wide slow down.
Yet, what could happen if crude were to fall to $50 ? I do not know the answer. It is wiser to track the price charts. the charts will tell us what may happen.