Investing in a Bear Market

Warren Bufffet is reportedly increasing his cash position:

“Warren Buffett’s mountain of cash may be a warning to investors that stocks are overvalued and that a crash is around the corner.

Berkshire’s cash pile is worth nearly 60% of its $208 billion portfolio of public companies. In the past 32 years, the group held more cash as a percentage of its portfolio only in the years leading up to the financial crisis of 2008, according to Bloomberg.

Berkshire Hathaway has been amassing cash for a while. The company boasted $111 billion at the end of June 2018, a record at the time. A crash didn’t immediately follow, indicating the cash pile doesn’t necessarily signal an imminent downturn.

Buffett would prefer to put Berkshire Hathaway’s cash to work in acquiring companies rather than buying stock, he wrote in his latest letter to shareholders. But current valuations are prohibitively high.” Read more…

But not everyone is Warren Buffet. For ordinary investors, the best course of action is to educate ourselves and be disciplined in our investments. The key to smart investing is knowledge and discipline.

Cultivating the discipline and focus to invest money regularly is a lot easier if you have defined your investment goals. Establish separate accounts for specific goals like college savings and retirement so you can tailor your choice of investment vehicles accordingly. Your state’s 529 Plan might be a great option for educational investments. An aggressive stock portfolio could be advantageous for a young person with retirement decades away; but a middle-aged person would want to consider less volatile options like bonds or certificates of deposit for at least a portion of retirement savings.

Keep your day job as long as you can. If you reinvest your yields from dividend stocks instead of cashing them out when paid, you get more shares that produce more dividends the next time around. Even a low-paying dividend stock left alone can create an avalanche of wealth over the decades.

It is important that you diversify your investments as much as you can. Remember the old saying: do not put all your eggs in the same basket. Instead of buying a quantity of stocks from the same company, look for other investments. However, you should also learn when to strengthen your positions when you find a great investment.

Understand the risk involved in the stock market. If you are used to investing in mutual funds, understand that individual stock investing is a greater risk. If you aren’t the type of person who is prepared to take a risk, stick with companies that have a good financial standing, and that have shown excellent stock performance in the past.

Do not start to sell all of your stock just because of an impending bear market. You may be trying to lighten potential losses, but this can be a huge mistake. Eventually, the market will rebound and most of the stocks will, too. Trying to cut your losses may actually cause them to be greater.

Never take anything personally in investing. Do not be jealous of another’s success. Do not let your financial advisor’s advice or criticism get to you. Do not panic when the market moves down and don’t get overly exhilarated when it rises. Many top fund managers make their best decisions when deep in yoga or after a long meditation.

Think about how much time you are willing to put into keeping up with the stock market. If you know that you can not give this investment a lot of time, you may need to have a broker work with you so that you can get what you want to get out of your investment.

Approach investing in stocks as a serious thing. Even if you are investing small amounts of money, you should take the time to think about your decisions instead of taking chances. The people you are competing against are taking trading seriously, and so should you if you want to be successful.

Consider getting some good software that specializes in investment management. It really does not cost that much and it will help save you a ton of time trying to learn how to properly do things. Look into getting one that can help you with profits and losses and one for tracking prices.

When you are investing in the stock market, you need to trade defensively to protect yourself from losses. By using stop losses, you can put in an order to automatically sell a stock when its price drops below a certain point. This will protect you against big losses in a downturn.

Many people find investing to be a challenge that they wish to undertake. The potential upside to wise investing is almost limitless. The best way to make the most of your investments is to arm yourself with facts. Use the guidance in this piece, and you will have a great start toward achieving your financial goals.