I sometimes get asked by investors what is a bull market and what is a bear market and how does it relate to Rule #1 Investing?
Well, let me put it in our terms…
We’re really excited about buying when there’s a lot of fear and we’re really excited about selling when there’s a lot of greed in the stock market. I’m going to tell you about how to take advantage of a bull and bear market.
What is a Bull Market?
Bull markets are defined by the market going up aggressively over a period of time. As the market starts to rise, there becomes more and more greed in the stock market. You see more and more people thinking, “Oh yeah let’s put money into the market because it’s going up.”
What is a Bear Market?
The bear market definition is exactly the opposite of a bull market. It’s a market where quarter after quarter the market is moving down about 20 percent. That signals a bear market, and when that happens people start to get really scared about putting money into the stock market. That’s because they don’t know how to invest Rule #1 style.
Bull vs Bear Markets
It’s important to remember that a bull market is characterized by a general sense of optimism and positive growth which tends to catalyze greed. A bear market is associated with a general sense of decline which tends to instill fear in the hearts of stockholders. As Rule #1 investors, we act opposite of the investing public – when it comes to bull vs bear markets – and capitalize on their emotions by finding quality stocks at low prices during bear markets and selling during bull markets when they’ve regained their value.
How to Use Rule #1 for a Bull and Bear Market
Rule #1 Investing is about taking advantage of fear and greed. We like to buy when there’s fear. In other words, when the market is going down, we love to be a buyer. When the market is going up, we love to be a seller.
The key thing to understand in Rule #1 Investing is that we move almost exactly the opposite of the way most people are moving in the marketplace. We take advantage of the bulls and bears.
Where most people feel really scared or nervous in a bear market, we’re looking to buy $10 dollar bills for $5 bucks. It’s like going to a flea market and everything is on sale, we get really excited.
Sometimes we get asked, “What if you buy the stock, and it goes down more?”
When we buy, we hope the stock goes down more!
We love to buy more when the stock goes down more. When the stock goes up again, is great because that’s when we start to collect the profit.
In conclusion, in a bear market or bull market, we pretty much do exactly the opposite of what everyone else is out there doing. As Rule #1 Investors we love taking advantage of bull and bear markets.
Thank you for reading my blog, if you want clarity on other important investing terms that you may have been wondering about, click the button below to get my Rule #1 financial terms glossary. Now go play.