What Stocks Should You Select For Bear Market?

April 18, 2010 by
Filed under Stock Market

When stocks are bullish – that is, when prices of the stock exchange in a steady rise – it is pretty easy for anyone to generate an income on Wall Street. Studies have also shown that in certain varieties of easy-money markets, beginners did just in addition to pros when it came to picking hot stocks and reaping fast profits. But the veterans of the stock market game say that the real test comes when there is a bear market and stocks fall into a general slump. People who can earn money under those conditions will gain the respect of even the most seasoned investors. But to do it requires patience, research, and discipline. Picking the right stock for the economic climate is not impossible, however.

One way to acquire a handle on which stocks will perform best during a bear market is to investigate the overall picture of how the stock exchange behaves. Usually bull markets are periods that in addition see a powerful manufacturing sector. Houses are built, cars are manufactured, and goods like appliances and clothes fly off the shelves. The businesses that make and sell those consumer products do well, and people who purchase their stock to share in that success drive stock prices higher. But when the party has ended and inflation kicks in, we begin to budget our money. Sales volume declines, and lots of factory workers find themselves unemployed as consumer necessity slackens. As wages stagnate, so do purchases of high priced things like cars and homes, and this helps to accelerate the slow of the stock exchange. But those who buy stocks that perform well even in this type of economic decline – the stocks referred to as “recession-proof” stocks – can usually do relatively well, even during sluggish bear markets.

Which stocks continue to reward shareholders in an economic downturn?

Generally speaking, those that are tied to fundamental basic necessities of life. We may not buy designer jeans and sports cars during a bear market, but we still buy heating oil and we still use electricity to light our offices and homes. So utility company stocks in general fare well during bear markets, as do businesses that sell other basic commodities like gasoline.

Gold and silver and other valuable metals are likewise a good choice for a difficult stock exchange season, because when individuals are nervous about the future of the economy, they are inclined to invest in things of universal value, like gold. It supplies a sense of security, because if all else fails to attract consumers, gold will still glitter and be considered an item of special value and significance. And if you purchase gold before the bear market sets in, you can probably sell it for a profit as soon as the necessity for it increases.

To sum it up, stocks that offer a sense of stability and security through ownership of those basic necessities of life are commonly a fine place to invest during a bear market. And buying stocks whose prices have fallen to bargain basement prices is also a clever strategy. Many perfectly good stocks with underlying value and strong earnings get dumped when people pull their investments away from the stock exchange en masse. People who are patient can acquire these at wholesale or below trade prices, and then watch their purchases rise in value once others realize that these stocks are good buys. When the stock market begins to climb again, those stocks that are undervalued will rise quickly and you will be left holding winners that you bought at deeply reduced prices.