The stock market is a world full of animals, literally and figuratively. There are bulls, bears, pigs, wolves, ostriches, dead cats, and more. If you asked this question, you might not know yet, but what you are looking to do is invest in a bearish market. However, we get into the thick of things by getting on to the answer, let’s understand what Nifty.
NIFTY 50 or nifty is the benchmarked index based on the weighted average of the top 50 companies on the National Stock Exchange of India.
For an investor’s purpose, Nifty is a sort of a litmus test for investors’ general market performance and mood. If the Nifty score is up, the majority of the company shares available on the market have their prices high and are performing well. If the Nifty score goes down, it indicates the exact opposite. When the Nifty score goes down by about 10%, it’s a worry. When it goes down by 20%, it is declared as a bear market. A bear market is bad for many existing stockholders in the market, but it might just be good news for you.
Are You Curious About The History And Importance Of The National Stock Exchange? Click Here To Read More.
What Causes A Bear Market/Fall In Nifty?
In a Bear Market, i.e., when the Nifty score is pathetically low, the stock market is suffering. Throughout recent history, Bear Markets have only occurred 4 times. The latest one being the times of the novel coronavirus or COVID-19 pandemic.
The general price level of all shares is low, even those of the best performers. This fall in price is triggered by what seems like a simple supply-demand mechanism. Investors expect an inevitable fall in price and start selling all their stock of stares. When shares are sold more, prices fall when shares are bought more, prices.
This all might seem bad news, but not if you have a keen eye and a different approach to investing in the stock market. You can beat the market even after just investing when the Nifty score is low.
How To Beat The Market By Investing When The Nifty Score Is Low?
There are several ways to beat the market by investing when Nifty is low. However, the core need for everything is to have a vision and the ability to predict the long-term future of the market.
However, the primary core principle is to benefit from the fall in shares’ prices. When Nifty falls, the share prices of even the best performers will be lower than before. This means, at present, more shares can be bought at a lower price of the same share of a listed company than they could be yesterday. Now, whenever investors and other big fish see a boom in the economy, they will start having bullish tendencies. The bullish tendency is where investors are highly optimistic and start buying shares, making the share prices drive up. When these share prices rise, your existing stockpile of shares can be sold. This change in rates is what you seek to benefit from, over the long term, or the short term, depending on your tolerance level, capital availability, and investment philosophy.
1. Investing In Toothpaste Shares
By toothpaste shares, we may or may not mean toothpaste companies. Toothpaste companies in share market terminology refer to companies in product lines like essentials, fast-moving consumer goods, medicinal products, etc.
Any product necessary for humans to survive or is going to be a part of everyone’s daily routine is a toothpaste product. For example, just like a layman will need a toothbrush in the times of a bull market or a progressive economy. In the times of a bear market or a recessive economy, products like basic medicines, packaged food, etc. will also be in demand and use.
Toothpaste shares are the safest options with minimum possible inherent risk. This is because, irrespective of the stock market value, customer demand will always be driving demand. As a result, they fluctuate relatively lesser that companies that deal with products which are luxuries or likewise.
However, since the inherent risk is less, so is the profit margin. These shares may fall hard and rise with the curve, but they don’t rise so much after a certain level.
2. Future Prediction
This particular investment ideology requires a vision and involves inherent risk to the extent of the viability of your prediction.
Sure, share trading is the game of future prediction, but this is a different kind. For example, if you think that a listed company whose product may not be relevant now, but is going to be highly relevant in the future when Nifty rises, then buying the shares of that company is the most viable when the Nifty is down.
For example, a company dealing in masks and infrared thermometers may be trading at a very low price. However, those smart minds that could predict the demand for the company’s product just around the onset of coronavirus and just at the beginning of bearish tendencies might be sitting on a ton of money now. The value of that company might have risen even when companies around the world were falling.
Mainly these are the two main ways of gaining over a short period. However, certain investors also use a fall in Nifty for long term gains. These use it for value investing and portfolio diversification.
3. Value Investing
Value Investing is the ideology preached by investment mogul Warren Buffet. Investors with this ideology invest in shares that have a competitive advantage with their products, have an experienced margin, and report high-profit margins yearly.
Why a lot of investors don’t use this method as the short term returns aren’t attractive, however why Warren Buffet preaches this method and why this is suitable for bear market buying is because these shares are of trusted companies. These companies will tide overtimes, bad and good, and are virtually guaranteed to give good returns over the long-term.
The purchase of such usually expensive shares becomes affordable during bear markets. This makes the profits only suitable when you liquidate them after a long time.
4. Portfolio Diversification
This advice is for seasoned investors who look at investing as a sort of a novelty and not as a source of their livelihood.
Many investors use the times when Nifty falls to buy move into newer industries and product lines. They do this to mitigate their buy-in value and thereby mitigate risks.
Stock trading is a highly speculative industry. Since the birth of the concepts of shares and publicly traded companies, investors have been trying to find the foolproof and risk-free way of investing. However, like everything in life, they have failed. Those mentioned above also involve risks.
Experts often see Bear Markets and low Nifty scores as a bad omen of potential economic ruin. However, they are not always disastrous if you are a smart investor who knows how to adapt to time.