Australian investor Colin Nicholson has written an excellent guide to handling bear markets in his latest newsletter.
He says a bear market isn’t time to be doing nothing. They should be used to position yourself for future opportunties, reviewing your trading plan, developing a list of hot stocks, and learning new skills.
He advocates sitting out bear markets in cash and waiting. But that requires patience. “Patience is a virtue largely lost in modern society,” he said. “We cannot make the market give us money. Instead we need the patience to wait for the bull market to come to us. It may be only a matter of months away, but more likely a year or more. Only time will tell.”
He also has a brief guide to four different types of market participants:
– Short-term speculators (hours to days)
– Swing speculators (days to months)
– Active investors (months to years)
– Buy-and-hold investors (a lifetime)
Nicholson defines himself as an active investor. His bear-market strategy is: “Primarily sitting in cash and waiting for the final phase of the bear market. This may sound boring, but at least the sign in front of the rate of return is a plus, not a minus.”