Sometimes the securities markets go into a long-term downswing. If you’re new to trading and investing, maybe you’ve wondered how you would change your strategies if global exchanges fell into such a state for several years running. In fact, it’s a good idea to have a backup plan in the event of a widespread downturn. People who have been buying and selling securities for decades know what it means to have to switch gears and adapt to prices that are generally falling. What’s your plan? If you don’t have one, consider one, some, or all of the following as ways to navigate negative securities price levels.
Dogs of the Dow
Dogs are slang for a specific type of stock, one whose price is so low that its dividend makes up a significant portion of the market value. For instance, if ABC Corp is selling for $12 and its quarterly dividend is $2.50, then it’s likely a dog of the Dow. You can check the financial news each day to see what the top 10 dogs are, based on the relationship of dividend to price, expressed as a percentage. The theory about dogs is that they have essentially bottomed out and are set to rise. Many contrarian investors only purchase these kinds of stocks on the assumption that their values have nowhere to go but up.
Shorting
Shorting a stock is a tricky maneuver as explained in this video here, but many people do it every day. Essentially, you enter into an agreement with someone who wants to buy, let’s say, 10 shares of ABC Corp stock for $25 each. You agree to deliver the shares on some date in the future, for example one week from today. Delivery time, price you’ll be paid, and then quantity is all agreed upon. Then, if the price dips, as short sellers hope it will, the seller makes a profit.
Assume in the above example that ABC fell to $10 within the week. When delivery day arrives, you simply go onto the open market, purchase 10 shares for the going price (now $10), for a total of $100. Then deliver them to the seller, who last week paid $250 up front. The take then is a $150 profit on sale of a stock that fell in value.
Specialty ETFs
Many exchange-traded funds are keyed to contrary issues, companies that do well when the general market suffers. These inverse ETFs are popular with traders who believe that bad times are ahead. You can purchase inverses in a number of different configurations and within specific niches, like healthcare, technology, precious metals, and more.
Mining Stocks
Because precious metals tend to do well, as a safe haven investment, when the securities exchanges suffer, many people seek out mining companies in bad times. The theory is that mining operations make larger profits when the prices of gold, silver, and other precious metals rise. This doesn’t always happen, but when the economy hits a rough patch, there always seems to be a lot of interest in the mining sector.
