How to Profit During a Bull & Bear Market

Today’s post is a guest post by Andre Albritton from The Millennials Next Door.  Check out his bio at the end of the post.

Looking at the stock market can be quite confusing if you are like most people who have no experience in investing. You have hundreds of companies, tons of numbers all of the place and the lingo sounds like another language. With new president-elect Donald Trump, it has become more confusing and volatile. The market has had sectors plummet and other sectors go up. Granted the market has stabilized since Election Day but the fact is we may be transitioning into a bear market from a bull market. However, there are tactics for each market that can help you profit off of any situation.

The market is based on global economic concerns, national economic data, and corporate financial performance. America has been in a bull market for the past seven years. This shows that investors believe the economy is doing well and have an optimistic outlook that strong results will continue. Since investors are optimistic about the market condition they will typically buy stocks while planning to make a profit whether it be for the short or long term. A simple way to remember the bull market is when a bull attacks its horn will strike up.

On the other side, we have the bear market. During this market condition investors are much more cautious about buying stocks and anticipating losses. This, of course, moves investors to sell their stocks instead of holding on to them. Typically a two-month downturn of 20% or more in multiple broad indexes, such as Dow Jones Industrial Average or Standard & Poor’s 500 index, will create a bear market. A simple way to remember the bear market is when a bear attacks its claws strikes down.

How to Profit During a Bull and Bear Market

Bull Market

In the start of the bull market, it is best to buy stocks at their lowest point as they start to bounce back.  This is a great entry to purchase shares of a great company for a bargain.  It is suggested to focus on the hardest hit sectors since they will have the lowest share price.  From this point, the shares should be held onto as the bull market continues to grow.  This can, however, take years depending on the economy.  When the market is in a mature stage it is now time to sell and profit off the wise investments purchased.

Unfortunately, the bull market entry point has already happened, so let’s look at other options on what to do.  An investor can still profit in a mature bull market but needs to think more cautious.  With a new president coming into office in 2017, our nation’s policies will change.  Start to review the President-elect cabinet choice, policies and all around behavior.  Based on his team’s action you can predict which sector will be hit hard and other sectors to invest in as they climb.  For example, since Donald Trump won the election private prison companies have seen price increases.  This is due to investors believing that Donald Trump is a fan or private prisons.  Another example is companies that deal with Obamacare have fallen in prices.  Obviously, investors know Trump plans on ending Obamacare, which will result in bad business for those companies that depend on it.

Bear Market

The last time America was in a bear market was in 2008.  This is most remembered as the American people bailing out big banks that were too large to fail.  If you remember, in a bear market investors are pessimistic about the economy.  From that, you can figure what the best advice in this market condition. Yup, that’s right, sell before the crash hits.  The stock market is a huge cycle throughout history.  America has been in a bull market for 7 years and the next phase of stocks is a bear market.  If you are fortunate enough to see the signs of it coming you have the pleasure of selling high before stock begin to go down.

Now if you can’t predict the future then I have two other tips for you.  When in a bear market it is wise to buy new IPOs as the companies show great financial strength by going public in a bear market.  If that is such the case you can bet against the stock market that stocks will go down by purchasing short stocks or short indexes.

My last tip is to buy low and sell high.  Just like the housing bubble, you had numerous people buying properties for cheap and sitting on it waiting for the market to return.  No difference here.  Purchase cheap stocks in strong companies and sit until the bull market comes back around.

How to Profit During a Bull & Bear Market

The stock market seems complicated but in reality, it truly isn’t.  It moves in a cycle that is somewhat predictable which means you can be ready for the next move.  Don’t be afraid to jump into the market but only after a plan has been made.  If you have at least 20 years until retirement you can still recover if you lose any money. Consult with a professional before making any significant changes or purchases.

 

Andre Albritton is a frugal man, finance junkie, and CFP in the making. He blogs about financial topics to help millennials become debt free and experience financial freedom.  Visit his website by clicking here. 

 

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3 comments

  1. While I think sometimes it makes sense to adjust your strategy based on whether there is a bull or bear market, I also think that there is something to be said about taking a more consistent approach. For example, if you consistently contribute to a retirement or investment account, you will end up buying when the market is both relatively high and relatively low, and will prosper over time. If you take that approach you don’t need to worry about trying to time the market.

    1. I agree with you as well, especially since the stock market has a decent annual growth rate. Good suggestion.

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