How to Manage Risk During Bear Markets

By Timothy Lutts, Chief Investment Strategist and Chief Analyst, Cabot Stock of the Month

When we're in a strong bull market, it's like driving down the highway on a clear summer day. Visibility is unlimited and your tires grip as well as they ever will. You can go pedal to the metal and rack up the miles—and the profits—quickly.

But a bear market is far less tolerant of aggressive behavior. The effects of your mistakes are magnified. And if you make enough wrong decisions, it can ruin you.

The secret to surviving the bear market, of course, is adapting.

You slow down, pulling money out of aggressive growth stocks. You hold a lot of cash on the sidelines, waiting for the weather to improve. And you constantly take stock of your position, monitoring each holding in your portfolio to ensure that it's not putting your financial future at risk.

If you do choose to continue investing aggressively during the bear market, you'll risk less if you keep your investments smaller, if you focus on buying only after stocks that remain in uptrends have had normal corrections, and if you are ruthless about cutting losses short.

If you do, and if you're a little lucky, you may actually make money. More important, you'll come out of the bear market unscathed, and ready to participate in the next bull market.

If you'd like weekly guidance on investing in the market's strongest stocks, as well as ongoing advice on when to buy, hold and sell those stocks, I suggest you try a no-risk trial subscription to Cabot Top Ten Report

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