The stock market tends to go through periodic cycles. The overall growth of the bull half-cycle is replaced by falling stock prices during the bear market period. There is mounting evidence that seven year bull market may be changing its course. While predicting future is a futile exercise, various market crash scenarios are being discussed.
How should we go through the approaching bear market? Should we get out of stocks completely until the conditions improve? Or should we actively trade using long/short approach? Or should we exit the market altogether and time our entry trying to get back in at the bottom? Market timing approach, that tells you to guess your way into the market at some later day may not work as well expected. Getting into the market by picking the bottom is a risky and nerve straining strategy. Balancing between the risk of losing money due to entering the market too early and missing the price surge by entering the market too late is psychologically difficult. Picking the bottom precisely is often impossible and entering the market at the bottom requires a lot of faith. Getting into the market too early or too late reduces the efficiency of the timing strategy. In fact, incorrect timing strategy that involves repeated market entries and exits may perform worse than just waiting through bear market with your original portfolio.
Alternative to outright timing of the market is the strategy of adjusting your investment portfolio to accommodate changes in the market conditions. As during the bull market surge, some individual stocks are left behind, some companies present good investment opportunities during the bear market. Usually as the economy goes deeper into bear market, more and more of such opportunities pop up and may be used to advantage of the investors. The portfolio adjustment by moving your capital to companies that are likely to outperform the market may work as an alternative to going all-cash in the conditions of bear market.
Rigorous research and careful selection of individual portfolio holdings are absolutely necessary, no matter what investment strategy you chose to pursue. As the market follows its course to the bottom and back up, the portfolio should also be periodically revised in order to incorporate changes in market conditions.