How to behave in a bear market

The Zimbabwe Stock Exchange has been on a downward trajectory since the June 15, 2023.

The All Share Index peaked at 187 657,43, but has since fallen to 128 944,39 as at Tuesday this week, reflecting a 31 percent drop in just over a month of trading.

The period under review coincided with fiscal and monetary measures that saw the tightening of money supply in the economy as authorities battled with inflationary pressures and currency depreciation.

In my view, with options to access the Zimbabwe dollar limited, some ZSE investors are liquidating their share holdings to fund working capital among other obligations.

The result has been a bearish market. But what should investor do in a bear market?

For investors, bear markets are times of extreme uncertainty and volatility. They can, however, be moments of opportunity for those who know how to manage them. In a bear market, investors could do the following:

The first thing is to maintain one’s cool and avoid panicking. When the market is falling, it’s tempting to get caught up in the anxiety and sell one’s investments.

Kudzanai Sharara

However, this is almost always the worst thing to do. Instead, keep calm and realise that bear markets are a natural part of the market cycle.

Secondly, the basic rule for stock market investing is to buy low and sell high. A bear market presents opportunities to purchase high-quality stocks at a low cost. Bear markets might be an excellent time to purchase high-quality equities at a bargain.

These are companies with solid fundamentals that are expected to do well when the market recovers.

Its also important to invest in stocks that provide dividends. Even when the stock market is down, dividend-paying investments can provide a consistent stream of income.

This can be a good approach to produce cash flow while offsetting losses from other investments.

In Zimbabwe firms normally pay dividends at half and at full year. Some don’t pay dividends though, choosing to reinvest. Others are simply not profitable to afford a dividend.

This is also the time to rebalance one’s investment portfolio. A bear market is an excellent moment to rebalance your portfolio and ensure that your asset allocation remains consistent with your risk tolerance and investing objectives.

Consider selling some of your riskier investments and investing in more conservative ones.

Whatever one does, never try to time the market. It’s impossible to predict when a bear market will end.

So, it’s best to focus on investing in quality stocks and staying invested for the long term.

The other thing is for one not to try and sell everything. There is risk of missing out on any possible gains if one sells all of their equities when the market improves.

Always keep in mind that bear markets are a natural component of the market cycle. They can be difficult to bear, but they also provide an opportunity to purchase high-quality equities at a discount.

Most importantly seek professional assistance if you are a novice in the game. If you’re unsure how to manage a bear market, consult with a financial professional such as a stockbroker, financial advisor, wealth or asset manager.-ebusinessweekly