Winning on Wall Street

The Risk of a Bear Market

Because the market has been rising steadily (with one or two brief setbacks) during the 1980’s and 1990’s, a buy-and-hold strategy has worked well. But in the long run, stock prices must come into line with overall economic growth. There is now a high risk of prices falling in a bear market. Therefore investors should abandon buy and hold strategies. Instead, they should move out of the market - not sell everything, but sell something as a hedge against risk. Investors are well advised to sell when risk of loss is high, and invest when the risk of loss is low. In general, opportunities for gain are greatest when the market is doing poorly.

How I Made Money From the 1987 Market Crash

In September, 1987, subscribers to the Zweig telephone hotline were advised to put 1% of their portfolio in November puts, 8% out of the money. If the market had gone down less than 8%, or if it had not gone down before November, the puts would have been worthless. But risk was higher than at any point since 1981, and the market collapsed on October 19. The puts, which give holders the right to sell a stock at a specified price, soared in value, for a weighted...