Ten Traps of the Bear Market

1. Throwing in the Towel – after a prolonged Bear market it gets all too hard for some investors. As such investors simply sell out never to return. This is the worst possible outcome. Keep in mind it will always get hard before the good times, otherwise there would not be good times.

2. Portfolio Rage – this is where you blame everyone else for the state of your portfolio. Remember, in a good market anyone can make good calls; it is in a bad market that your adviser earns his money.

3. False hope – when you see a $20 stock fall to $10, common sense will tell you that if it was good value at $20 then it is great value at $10. This is not always the case. The share may no longer be the same beast it was previously. Be careful when buying in a bear market, there is good value out there but not everything will turn to gold.

4. Weed the garden – do not fall into the trap of holding a stock which has fallen, a weed is a weed, pull it out and move on. At the same time do not sell good stocks, hold these as they are more likely to rebound with the market.

5. Suckers rally – the market can move sideways in a Bear, but on its sideways track it can tend to spike and dip. Do not be fooled by any spikes, these are most likely sucker rallies. Bear markets can last as long at 3 years.

6. The slow analysis’s – in a Bull market analysis’s are quick to increase their numbers on the back of good news; however, in a Bear market they are slow to down grade. Be careful of looking only at a companies PE ratio to determine if the company is cheap. A slow moving analysis’s may not have upgraded their numbers, as such the PE could be giving the wrong signal.

7. High dividends – it is common in Bear markets that companies cut dividends, do not look at the historical data. Take a look at the projected dividends before buying that high yielding stock.

8. Media madness – Media sell advertising space not information. The media love a good story and if they can not find one the next best thing is to make it up. Make sure you do your own independent research not just read a paper. Remember the old saying “Pay a dollar and you will get a dollar’s worth of information”.

9. Picking the bottom – nobody rings a bell at the bottom of the market to let you know. Trying to pick the bottom is a mugs game a savvy investor knows this, so they invest with a long term view buying quality stocks which are cheap. This way they do not miss the first 10-20% of the Bull market.

10. Quick recovery – losing money hurts and a Bear market can go for a number of years. Waiting for a quick rally will only leave you with broken dreams. Beware that there will be plenty of thrills and spills in the Bear market keep working through it and you will come out on the other side a better and richer investor.

We are always available to answer your questions.

So make sure you call us, before investing. Phone (07) 4771 4577

Jason Fittler