Be proactive to tide over the bear market

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The market is in a firm bear grip and stock investors and traders are a despondent lot.

Many investors have decided to sit tight on their portfolio and do nothing until markets recover. But this inaction can turn out to be a big mistake.

Are you making this mistake?

Over the next few weeks, we’ll be sharing with you some strategies that you can explore in choppy markets, which could minimize your losses, deliver some gains and even prepare you to ride the bull when it eventually arrives…

Like everything else investment-related, there is no ‘one-size-fits-all’ strategy for all investors in a bear market. Suitable action will depend on the composition of your portfolio and your larger financial goals, etc.

That being said, here are some options that you could explore…

The Stock Lending and Borrowing (SLB) to leverage stocks in your portfolio

Assume, you have bought shares of a leading private sector bank in a massive quantity with a time horizon of 3-5 years. But that’s making you a loss of 8%-10% due to harsh market conditions. Under such a scenario, lending your shares under SLB will fetch you returns, thereby helping you cut your losses with no extra effort.

Usually, institutional and large retail investors are more active than the retail investors in the SLB category as they try to hedge their investment portfolios and capitalize on reverse arbitrage opportunities.

At present, SLB is available on 331 stocks in the current month. Opting for SLB can fetch lenders a fair yield without compromising on any corporate action benefits such as dividends, rights and bonuses, among others.

We’ll tell you more about the potential of SLB in an article that follows soon…

Option strategies that not only enable hedging but also deliver some benefits from volatility

Mature traders who understands the risks associated with futures and options can deploy option strategies and gain even under extremely volatile market conditions. There is scope for implementing safe strategies too, for those who would like to make their debut in this market.

We have a detailed article on bear market option strategies, coming soon…

Give your entire portfolio a thorough health check-up

Market mayhems of the magnitude we have been experiencing since the beginning of 2018, cast out some favorite stocks of yesteryear. If you witnessed the bull-run of 2003-08 followed by the subsequent deep recession and dramatic recovery thereafter, you would know, several stocks never reached their 2007 peaks again. For one, they had run away too ahead of their fundamentals, and two, their fundamentals weakened subsequently, creating a positive feedback loop.

The infrastructure boom had blindfolded investors indeed!

Price paid for inaction…

Are we going to experience a déjà vu of such capital erosion even in future?

Some companies that caught the fancy of investors in the past have crumbled under the mountain of debt. They are unlikely to recover. On the other hand, stocks in the mid and small cap universe and select sectors such as Auto and Non-Banking Financial Company (NBFC) had run ahead of their fundamentals, completely ignoring the challenges at hand. Will they be able to regain ground they have lost over the last 15-18 months? Anybody’s guess.

Interestingly, when in need of money during bear phases, investors sell stocks that have fallen less. This isn’t a good strategy either. Companies that weather bad markets may turn out to be winner when markets recover.

Hence, it’s imperative to restructure your portfolio under falling markets to be sure that you are not plucking the roses and keeping thorns.

We will soon post an article on how you can restructure your portfolio in today’s market conditions.

 In a nutshell…

You might be tempted to become inactive when the going gets tough, but that won’t rescue you from tricky market conditions. Instead, select your strategies intelligently and negate the impact of market conditions.

 When things do not go your way, remember that every challenge — every adversity — contains within it the seeds of opportunity and growth— Roy T. Bennett

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Disclaimer: 

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

2 comments

  • Very Informative. Pl keep those articles coming soon.. As always, quality of article is good. Pl keep it up.

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