Bear Markets Defined
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Stocks have proven time and again to be a great lead indicator for the economy. They go down prior to a recession and advance before a new expansion has begun. During bull markets, the popular averages such as the Dow industrial will periodically suffer through a correction in the range of 10% to 15%. When the Dow’s decline exceeds 20%, it is typically sign that the economy is headed for, or already in, a recession.
During the last seven bear markets, including two that were not accompanied by a recession (and calling a bear market a 20% decline in the Dow from its previous peak), the Dow industrials have declined an average of 30.6%. So when the economy have gone sour and the Dow is off over 20%, you are now getting close to the bears markets lose. You than need to get ready to do what will prove hardest thing for most people at that time. Again do not use market timing as your method of making money in stock. Buy when stocks are cheap and you have idle funds that need to be put to work. By averaging your way into stocks at the top when the economy is humming and it is the easiest thing to do.
You might even want to consider the following as a rule of thumb. You the Dow declines 20% or more, consider that as a buy signal. You want the bottom (who does anyway?), but at least on a historical basis you’ll be pretty close. And if you have done your homework well, the growth stocks you buy should shoot up ahead of the averages when the markets turns for the better.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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