Sector funds in a bear market

Today we continue with how to invest in sector funds during a bear market.

If we are in a bear market, we must prepare for a long-term hold — the investment horizon is 1–3 years or even longer. In that case, staggered buying is the better approach.

In a bear market, the first priority is to improve the reward-to-risk ratio, and only then the win rate. And there is only one way to improve the reward-to-risk ratio: buy when valuation is low enough.

Buy strategy

In a bear market we focus on sectors with a solid net-asset base and low risk of sudden blow-ups. The relevant metric is the sector’s PB (price-to-book ratio).

1. Start building the position when the sector’s PB percentile falls below 20%;
2. Because the bear-to-bull transition takes a long time, use staggered DCA to improve the holding experience;
3. After the initial position, add once every time NAV drops another 2%.

Sell strategy

High-sentiment sectors easily get a “Davis double play” in up-cycles, so to maximise gains the sell strategy weighs both valuation and trend.

1. Trim 20% when the index PE percentile > 70%;
2. Trim another 20% when PE percentile > 80%;
3. Trim another 20% when PE percentile > 90%; if NAV drops more than 8% from its recent high in the short term, clear the position;
4. Trim another 20% when PE percentile > 100%; if NAV drops more than 10% from its recent high in the short term, clear the position.

There are two clearing rules, again for the strategy’s validity and a closed feedback loop.

As for whether PE or PB can reach a new historical high, we don’t bet on luck — we trust historical patterns.

The money beyond that is not what we chase through luck; certainty of profit matters more to us.

⚠️ This article is a methodological framework for illustration only and does not constitute any investment or trading advice. Markets carry risk; decisions require caution.