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Michael Sincere

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Dec. 4, 2021, 8:21 a.m. EST

In his final warning, this stock trading wizard — who made big money in bear markets and crashes — called this market a bubble like no other

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By Michael Sincere

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Cook’s to-do list

Here’s a list of some of the ways Cook was able to thrive during crashes and bear markets. Keep in mind that these strategies are primarily for traders: 

  1. Sell long positions and move into cash until the storm has passed. 

  2. Buy puts on the S&P 500. 

  3. Buy inverse ETFs. 

  4. Short individual stocks. 

Cook said that the most prudent strategy for many traders is to move into cash or sell stocks to a point where they’re comfortable. Moving to cash is not designed to make a profit but to protect your portfolio and also to be ready to take advantage of future investment opportunities. 

Cook said that you must know how much pain you can accept (i.e., risk tolerance). If you can handle a 30% or 40% downturn, then stay the course. If not, move to the sidelines. 

Another key to surviving bear markets and crashes is diversification. If your portfolio is diversified, there is no reason to panic, which is what many people do when the market loses 20% or more. 

Cook left other valuable nuggets of trading wisdom: “One thing that must be stressed,” he wrote, “is that bear markets are not bad. Think of corrections and bear markets as trading opportunities. There is a pause in buying and then an all-out run for the hills when the grizzly is on their heels. When a bear market arrives, people descend into irrational thinking and actions. It  always  happens.”

He added: “Take the opportunity to learn about downtrending markets. You should also prepare for the next bull market that will emerge once the bear market ends. That’s when you can really do well. While trading on the short side involves good timing skills and experience, it’s easier to trade in a rising market.”  

Michael Sincere (michaelsincere.com) is the author of “Understanding Options” and “Understanding Stocks.” His forthcoming book, “How to Profit in the Stock Market,” (McGraw-Hill), features an extensive interview with Mark D. Cook.

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