Weathering the Storms of the Stock Markets (Part 2)
The term "bear market" is derived from the downward, painful, and vicious decline reminiscent of the swipe made by an attacking bear. In contrast a ‘’bull market’’ depicts how a bull thrusts its horns up into the air and generally refers to a period of time when prices go up. Some causes of a bear market, aside from those mentioned earlier may include, a high inflation rates (double-digit) and declining economic activity as a result of unfavourable monetary policies (relatively high interest rates).
Generally, a bear market will cause the securities you already own to drop in price, perhaps by a substantial degree. The decline in their value may be sudden, or it could deteriorate slowly over time, but the end result is the same: The value of your portfolio holdings drops. Investors are highly susceptible to losing money during a bear market especially when they stop investing altogether — either out of fear, confusion, or because they just don’t know what to do.
To counter a bearish market, there are some strategies that can be adopted by investors to safe guard their stock portfolio. To better understand these strategies, it is key to first understand the different classifications of equity and how these various types of equity can be deployed and harnessed effectively during a market slump. According to Quora.com, there are four classes of stock namely:
To be continued