Are a bear market and a recession the same?

A recession impacts all economic activities in a country, whereas a bear market impacts only the stock prices. Simply put, a recession impacts everyone to some extent, whereas a bear market generally (and hugely) impacts stock market investors. Every recession adversely impacts stock prices, but each bear market may not be caused due to a recession.

Can one time the market?

As the stock price movement is a result of the collective actions of many participants in the market, it is almost impossible for an investor to correctly predict the directions and levels of the stock market. One should not buy and sell investments based on a specific event but should remain in the market long enough to reap the benefits of compounding. Here’s a short and sane piece of advice: ‘Do not time the market but give time to the market’. This advice applies more in a recession as it is very difficult to time your investment decisions based on the actual setting in of a recession or a recovery. The stock market gets an inkling of such events in advance, and stock prices often fall months before a recession sets in. It bounces back before confirmation of the recovery. So, investors should understand that trying to time the market is almost always like fighting a losing battle. There is no crystal ball that can predict when the market will bottom out. In other words, you will not always be able to buy and sell at the perfect time.

What to do during a recession and bear market?

The bear market is a great opportunity to buy stocks. It is a temporary ‘sale event’ as the stock markets invariably tend to go up in the long run. However, human psychology reacts differently to this sale event. Most of us flock to buy during sale events of big stores and online sellers, but investors generally stop investing during a bear market sale. However, the latter react differently during a bull market when they invest aggressively. The investing strategy during the bear phase should be well planned. It should cover a relatively long period as no one knows how long the ‘sale event’ will last and when the bottom will be reached. Investors should start investing in small quantities instead of investing big money in a short period. This will help them reap the benefits if the recession-induced bear phase gets prolonged.

How to go about investing during a recession?

Whether it is a recession or normal times, one should invest in equity only if they can hold on for a long period. While it is tempting for an investor to try to time the market when stock prices are low and falling, no one can time the market perfectly. The same old method of regular investing should be employed, which works during good times too. In a recession, how you invest is just as important as what you invest in. Seasoned investors who are experienced in picking the right stocks can go for direct stock investing. Investing is a specialised field where one should seek the help of experts. As retail investors cannot engage with a professional directly, they should avail of this benefit indirectly by investing through equity funds, which are managed by experienced and expert fund managers. For such investors, the indirect route of investing in stocks through equity mutual funds works wonders.

What to avoid during times of recession?

You may invest your surplus money during a recession to reap the benefit of suppressed prices, but do not go all out and deploy your entire surplus fund. Keep sufficient emergency funds to take care of your needs in times of emergency - such as if the recession lasts longer than expected or you lose your job. Though the price levels of broader indices and leading stocks may look mouth-watering during times of recession, it is recommended to avoid leveraging. Just because the stocks are available very cheap, never ever borrow money to invest in equity as the recession may last for a very long time. During this time, your equity investments may not generate any returns, but you will still have to service your loans, which can sometimes prove to be disastrous.

Recession and stock market: Should you invest? Investment strategy to invest in a recession-hit stock market

Date : 12/10/2022
Read: 8 mins

There have been some discussions lately regarding the recession hitting various economies. This has left many investors confused regarding their investment strategy. Should they get out of their stock investments and stop making further investments in the stock market? Let’s find out.

All economies run through a business cycle from recession to depression to trough to recovery to expansion to peak and then again to a recession. This happens at regular intervals. But the time taken to complete the whole cycle - and the duration of each component of the cycle - may not always be the same.  The recession is the starting point for the reversal of a peak in a business cycle. It is not necessary that all the components will take place during a particular business cycle. It may also happen that a recession may be immediately followed by a recovery directly, without the economy going through depression and trough. But first, let us understand what a recession is. A recession is a significant, widespread, and prolonged downturn in the economic activity of a country du...

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