Fire SaleA fire sale normally occurs after a bears market when there are many cheap stocks in the financial market. In fact it can appear that all stocks are cheap and undervalued during this time.This is when value investors like warren buffet prefer to jump into the market and buy stocks at a quarter what they were before. However before you decide to throw caution to the wind and buy aimlessly you must remember two things. 1. Fire Sales have been known to get investors stuck in value traps, where they buy a stock that will never recover or even go bankrupt. This can’t be completely avoided but you can try to avoid it by only picking stocks with good future potential and steady cash flow. 2. Just because a stock is undervalued does not mean it will go up in the near future. When stocks are on sale it is normally a good long term opportunity, you must be willing to let the stock run its course. Warren Buffet is a good example of this, he has been known to buy cheap stocks during a bears market and sit on them for the long term, even if they fall 50% or more in the short term. In short this period of time can be the best opportunity to make profit in a longer term perspective.
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