Market talk can be complicated. Part of the Masterminds mission is to demystify everything involving finance, investments, and personal and professional development, one post at a time. This time we'll explain, in the most simplest terms, the difference between a bullish market and a bearish one...
What is a BULL market?
This is when the market is strong and showing confidence. Indicators such as a rises in the NASDAQ and/or DOW, increase of numbers of shares traded, and influx of new businesses into the market could all be signs of a bullish market. Technically speaking, a bull market is marked by a rise of the market value of at least 20%.
If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook".
What is a BEAR market?
A bear market is just the opposite of a bull market. If the markets fall by more than 20% then we have entered a bear market. Bear markets illustrate a lack of confidence. Prices hover at the same price then go down, indices fall too and volumes are stagnant. In a bear market people are waiting for the bulls to start driving the prices up again. However, a bear is a very tentative bull or a bull that is asleep.
If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".
What does this mean for investors?
First, let me start by saying that all NOVICE investors should be conservative, and never risk investing in anything you do not understand. Investments span such a broad range (It's more than just stocks and bonds, but that we'll save for another post.) READ, READ, READ! Keeping up with the local and global news can be great helps when it comes to predicting a bullish or bearish market. Also, keep up with changing trends in specific types of financial instruments before putting your money into them. With many options, you will be able to ascertain when the high and low seasons are, increasing your chances of earning a profitable return.
It's simple: YOU BUY LOW AND SELL HIGH. This works for anything! Stocks, bonds, real estate, commodities, whatever!
So to make a high return, you should buy stocks in a bear market when stock prices are low and sell stocks in a bull market when stock prices are high. Knowing which is which is the hard part....
Many investors are often too emotional and they sell in a bear market because they are scared to lose money and they buy in a bull market because they don’t want to miss the big gains. You can make some money that way but it also explains why many investors lose money by trying to time the market. The safest way to help prevent yourself from making these mistakes is to buy stocks and invest in the market by regularly making fixed size investments, and holding your investments for a long period of time. (This is the conservative way.)
Once you have done your due diligence and have more advanced knowledge, you can move on to more aggressive ways to make money in the market, that will bring higher risk but also much higher returns. STAY TUNED.