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Making Money on a Down Market

Updated on August 6, 2007

The stock market has been suffering from increased panic in the last few weeks. The main reason for the difficulties has been the meltdown of the real estate market. All the risky mortgage loans approved in the past years, during the low interest rate phase, has come to haunt everyone as the default rates on ARM loans is skyrocketing.

Despite this bleak economical scenario, there are plenty of opportunities to make money in todays market. For one reason, the American economy is very diversified and has thousands of companies that are traded everyday. Here are some examples of profitable ideas for trading in the difficult times.

Dividend Stocks

A dividend is a distribution of profits to shareholders. Many businesses that are well established and have relatively lower perspective of growth provide their shareholder with periodical distributions of profit. Owning a dividend stock is like having a cash generating machine: each three months, on average, there is a dividend distribution that you can put in your pocket.

Defensive sectors

Some sectors of the economy are like clocks: they work every second without stopping. For example, think of the fast food sector: no matter how little money you have, you still need to eat. Also, the cheaper the food, the better perspectives for a fast food company when the economy is going down. Therefore, it is always good to own a few stocks of food companies in your portfolio.

Going short on stocks

If you are a little more sophisticated, a technique you can try is to go short of a stock. This means that, instead of buying a stock you are selling a stock that you borrowed from someone else (generally from a trading company). With this strategy, you can make a lot of money when other people are running from the market.

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