Here are some generic tips for buying / investing in a falling or a bear market:

1. Take a deep breath: when it looks like the heavens are falling, and everybody is selling, having a calm mind is important.

2. Remember Mutual Funds have no choice of what to sell and when to sell. They sell to meet redemptions.

3. Large cap shares fall, but mid cap and small cap crash. Do remember that mid cap and small caps can also get decimated if they have single sources of income – see MCX and Financial Technologies. Whether to buy these shares at beaten down prices is not an easy decision to make. The risk and returns both could be very high.

4. Look at big Mid cap companies with a good track record of long years, but have gone down BECAUSE the market is down – not because the earnings are bad.

5. In the large cap space look at Tata Steel and Tata Power – both have very poor earnings – making buying risky. However Tata Motors is doing well in its JLR – and is down because the sentiment is poor. This makes Tata Motors LESS RISKY. However, the risk in Tata Motors and Hdfc is they have not fallen in a falling market – hence opening you to greater risk. Understand all this before you decide to buy any of these shares.

6. Commodity companies are good buys when the PE is HIGH and a good sell when the PE is low. This flies in the face -but remember commodities are cyclical and market moves in advance anticipation. So when a commodity price is at its peak, it is a great time to be SELLING the share, and REPLACE it when the commodity price is at its lowest.

7. For those who understand FnO buying puts is a good alternative – but if you do not understand how it works, and do not like leverage, you can do a Futures transaction – again you get some little leverage, if you want.

8. Sell covered calls: again if you do not understand, stay away.

9. Once you have identified some scrips for buying remember you have a right to be greedy. After identifying Liberty Phosphate, I am being greedy and hoping to buy it at about Rs. 70. We had spotted it at 240 and knew it would fall from a cliff when the open offer ended.

10. Once the scrip and the price is identified, put a buy order regularly without being in a hurry – remember the market is not going up in a hurry. Patience will be rewarded.

11. If it is a company with a long track record see its performance over the previous bear market. If it is Tata Steel remember Steel cycles can last 8-10 years so even if you buy after 4 bad years you maybe holding for the next 6 years and lose patience, so be careful.

12. You do not buy a share because the downward journey is over, but because the upward journey is starting.

more tips later on…:-)

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  1. I find trying to understand a business extraordinarily soporific. So I stick with MFs.

    “You do not buy a share because the downward journey is over, but because the upward journey is starting”.

    I understand what you mean. Mathematically though, they represent the same event 🙂

  2. @Pattu : Not really. You do not buy a share because the downward journey of “share price” is over, but because the upward journey of “profits” is starting. 🙂

  3. I dont agree with following point.
    2. Remember Mutual Funds have no choice of what to sell and when to sell. They sell to meet redemptions.

    Because all mutual funds keep bluechip copmanies just so that they can be sold if there is need. Not because those are a great buy. Also, many mutual funds start becoming cash rich if they find that market is over valued and about to fall.

    That is what I have understood from my small reading. 🙂

  4. @ Sanjay … I think you are wrong

    “”Because all mutual funds keep bluechip copmanies just so that they can be sold if there is need. Not because those are a great buy. Also, many mutual funds start becoming cash rich if they find that market is over valued and about to fall.””

    Mutual funds invest in Blue Chip because they are stable in market breakdown in sense that their share price fall but not hugely and in this way INVESTOR’s money will not get erode completely . Had it been invested in Mid and Small Caps than during market breakdown it would see Bloodbath . Fat dividends by Blue Chip companies also make it a suitable candidate for multyplying investors wealth.
    Blue Chip companies that offer a record of continuous dividend payments and other strong investment qualities become good investment in the long run, so this also a reason why mutual fund companies invest in them.
    Now assume 8 to 10 Blue Chip companies are enough to Form a good fund for Fund House in this way people will get lured towards the fund House showing good returns.

    Blue Chip Companies also provide a good diversification which must not overlook.

    Coming to the point Overvalued it also means hype or too much speculation which may result in lofty profits for a while but are likely to experience severe losses also . Also most important point it depends if the Mutual fund company has taken EXPOSURE in that share or shares.

    Well My Friend I may be Wrong but these are just my thoughts and I am just a Kid now . Kindly correct me anywhere if i am wrong.

  5. Buy Nifty stocks and forget. Whenever there is downturn buy Nifty put options. I invested in midcaps and few large cap while nifty was in 6000. It value decreased by 40%. I consistently bought put options and made 60% return. In effect 20% return and now by stocks are going up dramatically.

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