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Risks and rewards of bull market


Bull market is market trend when price of assets or securities rise by 20%, an opposite from bear market. The term bull market is usually used when talking about securities but the term applies to anything that can be traded, real estate, currencies and commodities. During bull market all three major stock indexes, S&P 500, Nasdaq and Dow Jones Industrial Average rise. Bull market happens in healthy economy and is characterized by investor confidence and optimism. The term can be also applied to investors, ones that have optimistic view of the market is called bull or bullish. On the other hand investors with pessimistic view of the market are called bears or bearish.

Natural rise and fall of economic growth over time is known as business cycle and it has four phases: expansion phase, peak, contraction and through. Bull market happens during expansion phase when economy is growing with strong GDP, with drop in unemployment and strong corporate profits. In stock market there is increase in IPOs, positive demand and raising investor confidence. Investors behavior is influenced by national economic data, corporate financial performance and global economic concerns. It is not always easy to predict change in trends because not all factors are measurable for example market interpretation especially because psychological effect and speculation is often involved.

Investors use different strategies to take advantage of bull market. the point is to buy early and wait for the asset or security price to reach peak and then sell. In practice it is not so easy to time the market. Buy and hold strategy has proven it efficiency  and during bull market some investors might use increased buy and hold strategy when investors add as long as the price is rising and buy additional stock for every increase in price. Economy and stock market don't move in straight lines so even during bull market there are few drops which some investor use to buy stock at discounted price. Others take aggressive approach trying to squeeze maximum gains. 

During later expansion phase  of business cycle irrational exuberance and creation of assets bubble can happen. This happens when investors bid prices above underlying value and they are not supported by an underlying demand. Eventually bubble will burst and prices will fall. Even during bull market caution is needed, avoid herd mentality because belief that prices will rise forever is just mot possible.
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  1. DariyaFebruary 18, 2020 at 10:36 PM

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