Bottom Fishing – When the Markets Are Bearish
Bottom fishing is the practice of investing at a time of low valuation of securities, particularly at a time when the markets are bearish. Low-fishing is undertaken with the expectation that the stocks will bounce back and become a profit-making venture when the markets recover.You may want to check out Charleston bottom fishing for more.
How do I ask this?
Fishing at bottom can be a risky venture as markets will still shift against expectations. Price and timing are two vital factors that decide bottom-fishing profitability. When the market has bottomed out, we can buy stocks, but there’s no guarantee the market will move up or dip further. Therefore, if we are looking for speedy money, it is not anything to go for.
Bottom fishing techniques can also produce very good returns because there is plenty of room for re-rating because of the low valuations.
What effect does this have on me?
The difference between a deal and a stock that has dropped for a fundamental cause is very difficult to say. We can try to find stocks which have been undervalued by the market through fundamental analysis. And we may opt to be involved in prolonged bear markets where stocks can be battered by panic selling.
Nothing the underfishing
Lower stock market fishing is like throwing a net in deep waters, without knowing what to expect when you throw the net. Since one is never sure about the outcome, bottom fishing takes knowledge , experience, and some trial-and-error to produce the results predicted.
The big problem before investors when stock markets are on a decline is whether it’s time for bottom-fishing. Is the current market an opportunity to pile up big business at reasonable prices? One can never be sure how long a definite uptrend can take to catch up.
They stay at the bottom for a long time under normal conditions, when markets hit bottom. The odds of a fast recovery as in 1999 and 2003 are extremely low. And as seen from earlier trends, stock markets stay weak for a year after reaching the edge, and property for two years. Therefore, investors do not have to rush even when the markets are down because they have plenty of time to put together a portfolio at the bottom to benefit from the upturn that follows.
What should I do?
According to experts, one should start accumulating stocks in select sectors slowly with a medium to long term outlook, rather than waiting to catch the edge.
Investors should funnel capital into quality blue chip companies in a phased fashion. Ideally, allocations of 30-40 percent should be made to mutual equity/equity funds, 20-25 percent cash should be retained and the remainder should be held in fixed deposits and bullion.
When there are opportunities for inflation and high interest rates, and commodity prices are on a downward spiral, limited stocks in sectors such as finance, capital goods, manufacturing, media, and logistics are easier to look at.