How To Survive In A Bear Market - A Warren Buffett Style

The market has corrected very sharply in the past few days, so I thought it would be useful to consider few ways to survive in a bear market and of course following the Warren Buffett style.

I’ve selected a few quotes by Warren Buffett which makes sense and if you follow that you can survive any bear market.

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DNA Money India reports that the recent rise in market capitalization of Reliance Group (both Mukesh Ambani and Anil Ambani) stocks has caught the attention of SEBI. SEBI is investigating whether there was a market capitalization race between the two brothers.

I strongly believe that SEBI is right. It’s crystal clear that both the brothers are inflating their stock prices artificially. Otherwise the group stocks like AdLabs, Reliance Natural Resources, Reliance Industrial Infrastructure would never have climbed that much in months. That’s the reason why these stocks lost more than 50% of their market capital in two days (i.e January 21st and 22nd).

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If you have invested in the equity markets your investment needs to be continuously monitored. Even if you buy into equity with a long-term view, you still need to assess the performance of your portfolio on a regular basis. To assess the stock performance you need to monitor the performance of the company as well as the industry. You also need to keep in mind the economical, political and global factors affecting the firm. Therefore, take a closer look at the following factors while measuring the performance of stocks:

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Managing investments is a serious business. It can be a time-consuming task, because it requires intelligent planning, continuous monitoring and periodic adjustments. And it can be challenging, because it requires expert knowledge and experience. Equity investment does not provide you the luxury of sleeping over your investment just as would be possible in case of fixed income securities. Indian markets no longer work in isolation. You need to be very well aware of not only happenings of national interest but global issues which affect the future prosperity of your investment. Selecting stocks for one’s portfolio is only the beginning of the investment process. You need to review your valuation metrics to determine which stocks remain undervalued and which are approaching or have surpassed their fair value.

Enter The Stock Market When No One Dares

Warren Buffett says “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

• Don’t buy stocks recommended by brokerages or analysts without careful analysis.

• “The market is always right”.

• You can never be taught about market, you have to learn it by yourself from your experience.

• You must always balance fear and greed.

• Panic selling during a sharp fall is the worst thing to do

Top-down and bottom-up approaches

Before trying to understand the differences between top-down and bottom-up investing, remember that both of these approaches have the same goal - to find out great stocks. Top-down investing involves analyzing the ‘big picture’. Investors using this approach look at the economy and try to forecast which industry will generate the best returns. They then look for individual companies within the chosen industry and add the stock to their portfolios. For example, suppose you believe there will be a drop in interest rates. Using the top-down approach, you might determine that the home-building industry would benefit the most from the macroeconomic changes and then limit your search to the top companies in that industry.

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