Monday, June 30, 2008

Riding A Bear Market

That which does not kill us makes us stronger. ~ Friedrich Nietzsche

The month of June, 2008 has been pretty awful for the stock market. According to Dow Hits Bear-Market Territory, Signaling Woe For Economy in The Wall Street Journal, June 28-29, 2008, the Dow has fallen 20.2% from it's October, 2007 high. The article expects that the market has further to go before bottoming.

While I have been hunkering down and expecting the market to get worse, I take very little comfort in being right. Like many others who are retired, my financial situation is dependent on the stock market.

However, even though the bear market will be painful, there is a bright side on which one can capitalize.

  • Great buying opportunity. As I've written before, I prefer not to buy beaten down stocks, mainly because there usually is a good reason. However, a bear market lowers prices of all stocks, both the good and the bad.

    To find the good stocks, I am updating my stock buy list based on a modified Unemotional Investor Growth system. I will publish my updated list on Monday, July 7, 2008.

  • Great shorting opportunity. In a bear market, the trend of most stocks is down, making it a great time to short individual stocks. For reference, going short means selling a "borrowed" stock and then buying it back in the future, hopefully for a lower price.

    At this point, I think the best shorting opportunities are in financials, retail and consumer non-essentials. Hopefully, I will also have my list of stocks for potential shorting by July 7, 2008.
  • Finally, I plan to keep all funds (e.g. daily retirement expenses) needed for the short term (3-5 years) in cash or CDs. That way a bear market decline won't have a catastrophic impact on our short term standard of living.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

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