Bears sometimes get a bad press, and yes they can be dangerous. When faced with a real bear in the wild it can be a really bad move to run away, no matter what your emotions tell you. Much better to stay perfectly still, hold your nerve and wait for it to walk back to the woods to do what bears do. OK, we know it’s stretching the metaphor for what is happening to global stock markets, but it helps to get things into perspective.
So what is this bear market we see in the headlines and what does it mean for your investments?
A stock market is known as a “bear” when prices have fallen from their peak by at least 20% which is what has happened to the FTSE since its April 2015 high of just over 7000.
The natural tendency for inexperienced investors at this time is to run for safety by selling out of the market. While this is a perfectly natural reaction, those that do can crystallise a loss by selling at a price which is much less than the original buying price.
Some more confident investors may see the whole episode as a buying opportunity, with stocks appearing to be at a bargain price. This can, however, still be a gamble. Just because a market may look cheap, it doesn’t mean to say it won’t get a whole lot cheaper! At Ovation, our strategy is to carry on very much as usual whilst keeping a watchful eye, in the knowledge that our strategy has been tested through similar markets in the past and remains valid in today’s markets. Our portfolios have a wide mix of assets and while not immune to losses, they can considerably reduce their impact due to their diversification.
To work the metaphor once more: bears are a bit unpredictable, it is probably best not to run away, there are no obvious places of safety, interest on deposits hardly register and they cannot even outrun inflation! So don’t run and suffer the losses. We’ve seen bears before, they come and go, once you understand them, they are really not that frightening.
For help with this and all financial services speak to Ovation
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Disclaimer: This document seeks to address general business and financial issues and we have taken due care in its preparation. No responsibility for loss incurred by any person acting, or failing to act, as a result of any material in this publication can be accepted by Ovation Finance Limited. The value of investments can fall as well as rise. You may not get back what you invest. Please note that this does not represent personalised advice. Seek professional advice before making any investment decisions.
