When to Buy in a Down Market and when to Hide

During a down market, investors become unsure of what they should be doing. Some people say that you should try to buy as much as you can, while others say that you should stay out of the market. There is not a definitive approach for every stock but, you can be successful during a down market.

Buying Low

As a general rule, you can find good values in a down market. The object of investing is to buy low and sell high. When you are in the middle of a down market, it can be a great time to find stocks that are undervalued. If you are taking a long-term approach to investing, try to find a few stocks that you can invest in during this time. Look for companies that are historically strong and put your money into those stocks. As long as you feel relatively confident that they will be able to get through the tough times, there is no reason to avoid investing in them. When the market rebounds, the price of the stock will increase and you will realize a profit.

Cyclical vs Non-Cyclical Stocks

When you are trying to decide whether to invest in a company, you need to determine if you are dealing with a cyclical or a non-cyclical stock. Cyclical companies are ones that tend to rely on the economy to do well. If the economy is up, the company stock is up. If the economy is down, they will struggle. Non-cyclical stocks tend to do well regardless of the economy.

For example, the healthcare industry is non-cyclical because everyone always needs healthcare. If you are trying to invest in a company during down economic times and still make a profit, lean towards non-cyclical companies. If you tend to invest in cyclical companies, now might be a good time to stay out of the market. You never know when the economy could get worse and these companies can continue on a downward spiral.

Solid Companies

If you are an investor, you should always be looking for companies that are considered to be financially solid. Look for companies that appear to be long-term stocks and have differentiated themselves from the rest of their industry. There is really never a bad time to invest in good companies that are going to grow.

For example, if Google had issued their IPO during a down market, it would not have made much sense to sit on the sidelines just because of the market. If good companies come along, you should still jump at the opportunity. In order to determine if a company is really good, you need to do your own research. Read as much information as you can about companies that you are considering and look at the fundamentals associated with the company. If you like what you see, do not hesitate to get involved.

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