What is a bull market?
Also known as a bull run, a bull market is considered to be in effect when over stock prices rise significantly. There is no set rule for a bull market but a commonly accepted rule is a 20% increase in prices from a recent low, as long as there is the sentiment that prices will continue to rise beyond this. Any market can experience a bull market, from traditional stocks, to crypto, to house prices.
Key traits of a bull market
- Investor confidence is up: investors want to make money. As prices rise, people are easily convinced that this trend will continue. Historically speaking, theyre usually right. As sentiment increases, price further increases.
- Companies double down on their future: during bull markets, companies are usually doing well. They have cash to burn. Expect hiring sprees, internal investment, and growth. Everything is great!
- Wages go up: as a result of this growth, wages tend to increase as talent is more in demand.
- Spending becomes easier: when people earn more, they usually spend more. More is good, right?
So why do bull markets end?
All of this does risk inflation. Increased spending can drive up the price of goods and services, as people are willing to part with their cash more frivolously. When prices have risen too high, too fast, or when some other event deflates investor confidence in the market, the market is at risk of a downturn. It’s impossible to 100% accurately predict anything when it comes to markets, and we don’t know if it’s just a correction, or a full blown market reversal, until we’re right in it.
Bull market tips: Making the most of the good times.
- Strategy is king: A good investment strategy is formulated without the market in mind. Committing to rules makes life easier when the going gets tough, and when you’re experiencing greed or euphoria. Your strategy is personal to you, the only thing that matters is that you stick to it. It can include things such as your weekly investment rate or rules for withdrawing profits. It should take into account your current financial situation, your income, your risk tolerance.
An example of an investment strategy could look like this.
- I will invest 100$ per week regardless of market trend.
- I will diversifying my holdings 30/30/40 between these three assets.
- I will take 10% profits for every 20% raise in portfolio value.
- DCA is my friend. Bear markets mean cheap investments!
- I will review this strategy yearly.
Whatever it is, make it clear, make it actionable, and hold yourself accountable.
- Remain level headed: Greed is at an all time high: It can be easy to get sucked along in the euphoria of bull runs. But this is where you will see the benefit of a clear and robust strategy. It is easy to get caught up with the crowd. There are very few things more powerful at pushing people to make poor decisions, than the opportunity to make big money. If you’ve got a strategy, stick to it. If you don’t, make one. Consistency is key, and if you have no plan, it’s incredibly difficult to not throw your money away.
- Remember all good (and bad) things come to an end: What goes up.. must come down. And after it’s gone down, it’ll probably come back up.. The risk with bull markets is that you let euphoria and greed get the best of you. As long as you remember that bull markets don’t last forever, you’ll be ready for the inevitable downturn.
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