All financial experience times of overall growth and also times of general decline. Stock markets, commodities markets, currency markets and all other organized markets rise and fall in such a way. This has always been the case and always will be. It’s a natural progression of economic forces and is usually nothing to get too excited about.
In the United States, the names for these up and down markets have traditionally been Bull and bear markets respectively. The term bull stems from the way a bull charges its victim. It comes in with its head down low and quickly lifts its head up as it attacks. The bear on the other hand attacks from a high stance and pummels its victims into the ground. Now that you have the descriptive terms in your mind, you should never confuse the two market trends.
Investors spend a great deal of time studying these trends in bear and bull markets. The trends can last from a few months to several years and has a huge impact on investment strategy. By definition, the market must either rise or fall 20% for it to be considered a trend.
If you consider the old adage that to make money in the market you simply have to buy low and sell high, it becomes obvious how important such trends are. The concept is easy to understand, but being able to predict when a trend will occur is crucial. It’s not really important where the market stands or what the current trend is to make money; it’s only important to predict the next trend as quickly as possible.
For the most part, the trend of the U.S. stock markets is an upward one. This means that regardless of when you buy into the market, if you leave your money long enough you will see a profit. Speculators worry more about making bigger profits quickly and therefore must recognize and anticipate variations.
Though the overall trend is growth, bear markets can sometimes make that look impossible. In late 2007, the market changed from bull to bear. By the end of 2008, the stock market has lost 40% of its previous value. Foreign markets fared worse.
For the average investor, market trends should not be a major fear factor. The worst thing you can do is panic and sell your assets when you see the market continue to fall. In fact, this is exactly what speculators want you to do and is how they make their big profits. By the time you see that the trend is downward, it is likely already near the bottom and will soon begin to rise again. If you sell at that time, you will be selling low, the opposite of investment wisdom.
A better strategy is to be prepared for these low points in the market with ready capital. This is how one can buy low. Bear markets usually offer great offers for long-term investors. You can pick up blue chip stocks for a greatly discounted rate.
Bulls and bears come and go. Nothing is permanent in the market. Learn the basics and what the different trends mean and your investment skills will improve tremendously.
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About the Author:
This information was penned by Cheli Jenkins, a senior editor for Ratelines.com. Since 2004, Ratelines’ purpose has been to provide consumers and borrowers alike with helpful resources and tools about cd rates and insurance rates.
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