Issuer Purchases of Their Own Common Stock in the Open Market

WrittenBy:A. J. Palmer
It is alwayseasy to get panic whenthe market moves against your position. The first month of 2008 has been such adifficult time for those having long position in stocks as the marketcontinues to plunge as if nothing could stop it.

Do not let the market discourage you as there are ways to survive a down market. Youmay have to take quite a sizable losses, but at least take some actions that will not get you disappear from the stock market forever. Here aresome alternatives of action you may consider to protect your capital.

1. Cut loss your position. It is always tough to tell where the bottom will be when the market is in free fall. Do not try tohang on hoping the market will bounce to save you. Just like trying to save yourself whenyour house is on fire, you will not stay inside your house hoping the firewill get put off soon, right?. The fire will be over sooner or later, but by the time it is over, you may have nothing left. Takeany rally attemptas a chance to unload your position.

2. Sell your margin position.When your position is on margin, your potential downside will be evenworse. Sell your position in order to prevent yourself from getting a margin call. Instead of bailing out the falling stock,it is better tosave your cash for better opportunity later on once the market has stabilized.

3. Buy put option. If you think you are too late to cut loss,but you are still not sure how deep the market could go fromhere, you couldbuy some put option as a hedge to protect your existing holding. Put option will help limit your downside risks. In addition tohedging your position, you may also consider buying put optionsto take advantage of the market weakness.

4. Rotate your portfolio. If for somereasons you should stay in the market, it is time to rotate your portfolio. Buy stocks that are defensive in nature, the ones that have regular income streams, or those that are not so much affected by weak consumer affordability, such asutilities, healthcare, or consumer staples.

5. Get rid of growthstock. This is the first batch of stocks you need to dumpas there is no place for growth stocks in a bear market. Growth stocks tend to outperform the overall market during bull market, but underperform during bear market.

6. Do not try to catch the falling knife. When the market has come down so much, it is always temptingto pick stocks that look at a bargain. Even if you are a long term investor, you may want to see the market stabilizing before committing your capitalinto the market. It is better to enter the market at a higher price on the way up, but with less downside risk.

7. Do not average down. Some people do this to lower their average entry price. You may do it if you know for sure where the bottomis and when the stock will rebound. The problem is we are not sure of these and you will end up throwing good money after bad money. Some stocks take years to come back to their heydays.