The terms ‘bull’ and ‘bear’ can be heard almost daily in the world of investment. The direction in which a market proceeds would be a major force that affects the portfolio. Let us take a look at the bull and bear markets before discussing how you should invest in a bull market.
What are the bull and bear markets?
The ‘bull’ and ‘bear’ markets are terms used to denote how the stock markets are performing, i.e. if the stocks are depreciating in value or appreciating. Not only that, since the markets are actually determined by what the investors feel about the economy at present, these terms denote how the investors feel about the market.
How would you identify the bull market?
If you find the changes in the following factors giving indications to a bull market, you can be sure of it. These are some of the major factors to look for while summing up the market.
- Supply and Demand of the Securities – The bull market is generally marked by a weak supply and a strong demand of the securities and stocks. This is a result of the majority of investors trying to buy securities and there is hardly anyone to sell. This is the reason why share prices start to rise as the investors are competing to obtain the available equities. This leads to the next point.
- Psychology of the Investors – The behavior of the market will get impacted and determined by the activities of the investors and how they think. The investor psychology and the performance of the stock market are dependent on each other.
- Economic activities – The businesses who have released the stocks are the participants of a greater economy, this economy has a direct connection to the equity market. The activities in the bull market show that people have more money and are willing to spend them. This is what drives the economy and offers strength.
What are the tips to invest in a bull market?
The equity markets touch new highs and excite the investors every now and then but offer them some caution as well. These are characteristics of a bull market. While there are some factors required to identify a bull market, you can generally recognise the trend through the growth patterns. You should try following the underlying tips to make the most out of a bull market:
1. Never bother about the absolute numbers
One of the mistakes that most investors commit is to bother about the absolute numbers. Looking at the absolute value of the Sensex or the Nifty or an individual stock would be a real mistake. Refrain from doing this mistake. Evaluating indices or stocks can only be made possible by comparing the earning potential they possess. This is the only way to stay on top of the equity market.
2. Keep the fundamentals in mind, always
Most investors start forgetting the fundamentals and the golden rules of investing in the haste of investing in a bullish market. It is very important to research the company before making an investment in share market. People start hoping that the prices of these stocks would bounce back some time. It is recommended to buy on dips but this does in no way mean that the growth prospects of those shares should be ignored. A major driving reason for the share prices are the prospects of a company. That is why every time a share is bought, you should invest some time in research and that rule does not get voided while investing in a bull market. Read about the firm, its visions, and the dynamics of how the business gets conducted before investing.
3. Proper enter and exit
Though it is in human nature to be hopeful, do not let your judgements be clouded during investing. Sometimes investors start to be too optimistic and make wrong estimates, expecting the stock prices to keep rising. Another thing is that you should never get encouraged by other investors and end up buying shares that are overpriced. If you look at the equity market, it might seem to be volatile in the short term. But this is not true in the long run. All the more, the pattern seems to recur after a certain period in time. A successful investor is one who would invest in a company whose prices have been beaten down and hold on to them until the prices have surged.
4. Try to cut losses, whenever possible
Investors are ready to cash out even on the smallest profits, but whenever there comes a time to book losses on the declining prices, they are totally unwilling. People continue to hold on to them in the hope that the stocks would offer profits in the near future. It is true that buying shares at a low price is recommended but that does not mean you should buy prices without researching about the company first just to protect the average cost of the stock portfolio. To ensure that you stop losses at a certain point of time, you should ensure that the broker sells stocks at a certain price so that losses can be limited.
5. Keep regular investment in equity intact
You would not need to change the allocation of assets just because of an ongoing bull market. It is advised of the investors to continue with regular investments even when there is an upward trend in the market. Experts claim that this would actually help investors to get the full benefits of the short-term investment.
6. Looking to invest in a long-term
Making profits is not easy by investing in a short term. The investor should have the perception to perfectly time the equity market among the fluctuations and volatility if he wants to captivate that. It would be quite difficult to make profits in the short span of time due o the volatility that exists in the markets. But if you look at the market over a long time, it gives positive returns.
These are some of the simple tips to invest in a bull market.