How To Make Money In A Bear Market

'Reduce your equity allocation, put that allocation into gold and fixed income.'

"This is going to be a long, problematic bear market... Bear markets are very interesting because, through the journey of a bear market, you get some amazingly profitable rallies. If you're smart, you can play them and make a lot of money," Shankar Sharma, founder GQuant Investech, tells Rediff.com's Prasanna D Zore.

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How do you see India navigating global headwinds, especially in terms of trade, tariffs, and foreign investments?

India doesn't matter in the world of trade. We have nothing to export to anybody of any use. What do we export to America? Some garments, some shoes. There's nothing useful from India that goes to America.

So, even if they (the US) impose taxes, so what? We don't export. We're not an exporting economy. We sell to each other, and that's how we grow. Nobody else has any interest in Indian goods.

I don't think tariffs will hurt India much because we have nothing to export to the world.

If I were to ask you the opposite -- what if import tariffs are reduced? There is already talk of import duties to be reduced on electric vehicles coming to India from the US. How do you think that will impact the Indian economy?

We have nothing to export to America or of any value, which is why there have been no new tariff impositions on India. Because they have seen the magic -- India is a non-entity in exports to America or in the American export basket.

India doesn't matter. What's the point of taxing us? But on the import front, we have reduced duties on bourbon whiskey, Harley Davidson, and now on Tesla cars. But the duty reductions are not only on Tesla; it's for the entire category -- electric vehicles. And that will bring in the Chinese.

That is the real problem. That is going to decimate the Indian auto industry.

Which other sectors do you think could face the brunt if India buckles reduces import duties on whatever the US asks for? Apart from the automobile sector, which other sectors do you think will be impacted?

America is another country that doesn't export much. It is a consuming country. So, that's also a good thing. What does America have? Harley Davidson and bourbon. How many people will drink bourbon whiskey and drive Harley bikes in India? A few thousand. It doesn't matter.

What else does America send to us? Nothing. In terms of merchandise, there's nothing from America that is of any use to India.

So, the only thing of use is Tesla cars from America, we have given them the red carpet. They might bring in Starlink, which is a service, not merchandise.

Basically, Elon Musk's interests will be furthered. But Elon Musk manufactures only one thing, which is Tesla. Rest all are services.

You talked about the end of the bull market. How should retail investors approach such volatile markets?
As you said, the markets will not fall in one straight line. There will be rallies as well, and there will be a lot of volatility expected.
What strategies should investors adopt to safeguard their portfolios in the next five years?

Fixed income and gold are very good options for retail investors in India.

You are suggesting diversifying their portfolio?

Absolutely. Reduce your equity allocations or sell into the rally. Reduce your equity allocation, put that allocation into gold and fixed income. That's the way the pie chart should change.

You have also been talking about mutual fund investors offering liquidity to foreign institutional investors selling at the peak.
Do you think it's also the fiduciary responsibility of mutual fund managers, who are actually putting this money into the markets on behalf of SIP investors, to sit on cash instead of regularly investing SIP money without bothering about valuations?

No, no, no, no. Mutual fund managers have no option to sit on cash.

Why not? What are the risks?

It's very simple. If an investor gives you cash, they want you to invest. They don't want cash because why should they pay 1% management fee for you to sit on cash? So, mutual fund managers cannot and should not sit on cash beyond a little percentage, say 5%. It's not their job. It's not their instruction from the investors.

It is for the investors themselves to sit and figure out whether they need money in this whole process or not. It is not the job of asset management companies to tell investors -- 'No, do not put in money.'

It is like asking a liquor company to put out ads or shut down sales of liquor when people get too drunk. No. Why should you do that? You are adults.

There is an adult cutoff for mutual fund investing as well as for drinking. You make your own judgments. The liquor company is not going to stop you from drinking as long as you have the money.

Given the current market dynamics, what are the key sectors, if at all, which could generate good value for the next five years and can create long-term wealth?
Do you see any emerging opportunities that could drive the next bull market whenever it starts after the five years, if at all?

It's too early to get into all that. Let the bear market settle in properly. We have just got two or three months of the bear market starting. Let it settle down.

This is going to be an interesting period. We will get new winners, but it's too early to start talking about that. It's more important, to save the capital you have invested by taking smart decisions to exit into the rally.

How much more pain do you see left in the system?

We are just getting started. We are just two or three months into this. This is going to be a long, problematic bear market. But it's going to keep us interested because of sharp rallies in the middle. That's the way bear markets are.

Bull markets can be boring. Bear markets are very engaging because, through the journey of a bear market, you get some amazingly profitable rallies. If you're smart, you can play them and make a lot of money.

Why do you call yourself a hare?

In this market, I am a hare permanently. I do not take anything for granted. A bull market is also a cycle; a bear market is also a cycle. And as a hare, I am always alert and alive to opportunity and danger.

Unlike people who think only in binary terms -- bull or bear -- I'm always alive to two changing scenarios, and the moment I spot them, I change.

My investing philosophy is simple as that. So, I changed in July last year from equities into dollarised fixed income, and I tweeted about it on July 24th (2024). That's it. So, I have not been much hurt in this fall.

We can't exit 100%; it's not possible. But whatever one has taken off the table, one is saving good enough.

How do hares make money in a bear market? Would you have any advice for investors on how to make money in the oncoming bear market?

Bear markets are hard to play, and almost nobody will be able to trade them profitably -- at least not small investors. So, the only thing is to use the bear market rallies to lighten up on your positions and shift into more stable assets like fixed income and gold.

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