An investor will always come across the terms bull market or bear market. Phrases such as: we are now entering a bull market period, or the bearish market will soon be over, are common. It is important for the investor to know exactly the meaning of these terms.
Bull Market Definition
Bull market is a period of several months or even years when prices rise. During those months or years prices will rise by at least 20%. The term is usually in reference to the stock market, but it also applies to foreign exchange, real estate, bonds, commodities, precious metals etc.
Bull Market Characteristics
Bull markets are characterized by optimism, investor confidence and expectations that strong results should continue. At the same time you need a strong economy indicated by high employment, high disposable income and high business profits. However, investor confidence is more powerful than any economic indicator. When investors believe something is going to happen ( a bull market) then it will happen.
Is Bull Market a Money Making Opportunity?
Bull markets present a great opportunity for the investor to make money. Usually, in a bull market situation prices rise across the board. Nevertheless, bull markets do not last forever and they never give notice prior to their arrival. Therefore, the investor must know when is the best time to buy, or to sell in order to maximize his or hers profits. In fact the investor must attempt to time the market when a bull market begins and time the market when a bull market ends. Timing the market is imperative for making profits. There have been many examples of people who lost their money because their timing was totally wrong.
What I am trying to say here is the following. Just before a bull market is about to start, an experienced investor goes ahead and invests. When a bull market is about to end, the investor sells and puts his or hers profits in the pocket. This of course is very difficult because to predict when a bull market is about to start or to end is not easy at all.
Bear Market Definition
On the other side a Bear market is the exact opposite with market prices falling for a number of months or years, creating a background of negative sentiment.
Bear Market Characteristics
In a bear market investors lack confidence and market expectations are low or negative. A bear market appears after negative economic results, such as: high unemployment rates, reduced disposable income and problematic business profits. Most importantly though, investor pessimism plays a larger role than actual poor economic results.
Can I Lose Money in a Bearish Market?
An investor should have his or her eyes open, to get out of the market before it turns bearish. Investing in a bearish market is out of the question. You will lose your money. Experienced investors get back in the market just before it turns bullish. This way they buy low. This is also not easy at all.
Analysts spend thousands of hours trying to determine what will trigger the next bull or bear market and how long it will last. The basic idea behind investing is to buy low and to sell high. This will maximize profits. Therefore, to make money you invest at the beginning of a bull market end sell at the end of a bull market. If we could predict when is the best time to buy or sell, then we all would have been millionaires by now.