How to handle a bear market?

Globally the stock markets have injured anybody who is a short-term thinker and trader. Anybody who started investing in the stock markets or mutual funds with the dream of making a quick buck and exiting fast would be at the moment going through an extremely difficult phase. Anybody who borrowed money to invest must be cursing his or her luck. The same people who might be boasting about their skills six months ago, at the moment might be facing some of the most difficult periods of their life.

That is how markets are - they take people all the way up and then make the person fall all the way down, if the person survives the fall, they once again go up. It is just like a roller coaster. Many of you might be new investors, while others might have been investing for several years and still others might be wondering if you should start investing. I know so many people who are running around for some peace and calmness. Some of them might have been carried away and invested in bad companies, but I tell them not to lose hope and to learn from what has happened.

At the same time there are people who have invested in companies with excellent fundamentals, who also have started panicking because of all the various things happening around. They are much better than those who have invested in companies with no fundamentals. They have invested in companies, which are a part of the real economy. Yes reports suggest that India’s economic growth might be slowing down, but please remember that it is still very fast compared to other countries. It still doesn’t mean that everything is doomed and you should sell quality assets in a panic.

Did the promoters of Infosys sell their entire stock after the IT crash? Or did the Ambanis sell their entire company during stock markets scams and corrections? When you invest in a company, you are not just buying stock, but own a part of the company. The stock price will adjust to the happenings in the real economy over a period of time.

For instance several companies today are quoting at prices, which are much lower than what they were two years ago, even though profits have increased exponentially since then. Does this mean that a person who has invested in such a company is a fool? If you study the investment style of the richest man on earth today- Warren Buffett, you will see how he has held stocks for several years even when for short periods of times (yes - two years is short when you think of a companies entire life span) they went much below his purchase price.

Anybody who started investing 10 years ago, and held onto quality stocks or mutual funds would be a much richer man today. But does that mean you should never sell stock? Not at all, you should sell your stock whenever you need the money, whenever you are satisfied with the returns or whenever you feel that the company doesn’t have a lot of potential left in it.

I know it is hard for you to hear such things, especially if your portfolio is all in red and you watch your wealth being eroded each and every day as the markets fall. But just look around and you will see that the real economy is still strong. Salaries are rising and so is spending. Profits are rising and companies are expanding. Organisations or individuals who succeed and create wealth have a long term visions and outlook towards things. They too have faced difficult and challenging times, but they do not give up and use those challenging times as opportunities to learn and increase their knowledge. Don’t let your world revolve around stock prices, instead look at the real economy and see what is happening there. Maybe this is the best time to think and make the most of the ideas you have.

I hope my words are able to inspire, motivate and bring a sense of calmness to fellow investors. We are all in this together and the best way to go through it is to help each other with our thoughts and ideas.

Happy Wealth Creation!

- Yogesh Chabria

The author is an investor and bestselling author. His latest book Invest The Happionaire Way should hit bookshops near you within a few months. You can connect with him by visiting his blog at www.blog.happionaire.com and don’t forget to subscribe to his free newsletter. You can write to him at yogesh.chabria@moneycontrol.com

© Copyright 2008 The Happionaire™  -Yogesh Chabria
All Rights Reserved
The Happionaire™ Way/HAPPIONAIRE™ is a trademark owned by Yogesh Chabria