I’ve heard people talk about bull markets and bear markets. But what does it even mean?
A bull market is when the stock prices keep going up for a long time, and a bear market is when the stock prices keep going down for a long time.
Even though the terms bull and bear market are different, it is hard to remember which is which. Is there an easy way to remember that?
When bulls charge, they start with their horns low and move them up. But when bears charge, they start on their back legs, rearing up, and then they come down. That’s how the terms bull market and bear market were coined.
What causes a bull or bear market?
Like any stock price change, the basic reason is the underlying economic factors like inflation rate, prevailing interest rates, unemployment rate, etc. It is also affected by the market sentiment, which is people’s expectations of the future performance of the companies in the stock market.
Can you teach me how to predict if there is going to be a bull or bear market? I would love to get super rich quickly!
If only we could predict! Experts try to forecast if the stock prices are going to go up or down, but how long a bull or bear market would last cannot be predicted with certainty.
Do they always take turns? I mean, is a bull market always followed by a bear market, and vice versa?
Yes, usually they do follow each other. But at times, there could be periods of stock prices being stagnant.
What should be my investment strategy in bull and bear markets? Should I buy more during a bull market because the market is going up, and sell more during a bear market because the market is going down?
During a bull market, people assume that the stock prices would keep going up, and they want to buy more stocks. But a bull market is actually a good time to sell at least some of your stocks to book profits. Likewise, during a bear market, people are scared and assume that the stock prices would keep going down, and they want to sell all their stocks. But a bear market can be a great time to buy stocks of good companies at a low price, so that you can book profits when the prices go up again.
However, if you are disciplined and follow good investing practices like Dollar Cost Averaging, then it doesn’t really matter whether it is a bull or bear market.
What is Dollar Cost Averaging?
Dollar Cost Averaging is a great strategy for long-term investors. But that’s a topic for another time…