Bear Markets: Synonym for Opportunities

Bear markets tend to affect people in different ways. Some investors panic, some attempt to profit from the panic, and yet others ponder if the time's finally right to take that flight to safety or quality. While different economic and financial issues are to blame every time the bears begin to roar on Wall Street, there is a constant factor in every market downturn: Traders and investors tend to make the same mistakes.

Market crashes and long recessions aren't new to investors by any means. The last major episode of turmoil in Wall Street was in 2008, during the collapse of the infamous Lehman Brothers and the subsequent credit crunch. Everyone remembers the disastrous results: The major stock and bond index benchmarks suffered huge losses, and the losses were across the board. Large-cap stocks that paid handsome dividends did not necessarily fare any better than their riskier counterparts. The old tenets about long-term investing in blue chips and diversification didn't seem to help much. Just about everyone lost money, that's the way bear markets work.

Veteran traders often mention that volatility is their best friend. This might be true for a trader that happens to be waiting on the right side of the trade, but to fundamental investors volatility is simply a byproduct of speculation. Following the herd instinct isn't always to best method to survive a market crash. Sure, there are many traders who swear by the strategy of taking short positions when the markets are in free-fall, however this isn't always a profitable endeavor. These days the financial exchanges are plagued by high-frequency trading programs that are no match for an individual trader who thinks he or she will profit by placing a few short orders during a dip in the market. This type of risky investments only helps to exacerbate the pain of bear markets.

The current state of economic crisis in the Eurozone and the consternation over the growing deficit in the United States are good signs that a new bear market is upon us. The general financial forecast is dreary. How are investors preparing for it?

The looming bear market is bringing out a few stories in the financial news media about how different traders and investors see a bear market. Billionaire American investor Warren Buffett once made a sage remark about the irony of Wall Street as a marketplace. Investors rush to get in when prices are at their highest levels, then rush to get out when items are marked for clearance. Buffett should know: As CEO of Berkshire Hathaway, he recently announced a share buyback program at a time when his company stock is down more than 20 percent since February. A BBC interview with Alessio Rastani, a day trader from London, shed light on a different approach to bear markets. Rastani was quite blunt about his excitement over the worsening financial crisis. He did not mince any words: "I go to bed every night and I dream of another recession." Rastani's less-than-thoughtful statements clearly illustrate a speculator's mindset when it comes to dealing with a bear market.

Buffett and Rastani may not be cut from the same cloth, but they share a common goal--to not succumb to panic when the bears come calling.

Article written by Joao Mortalha of Coupon Croc - your best source for discount codes and coupons.