Investing from Bear to Bull

DEFINITION of 'Bear Market'

A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20\% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.

BREAKING DOWN 'Bear Market'

A bear market should not be confused with a correction, which is a short-term trend that has a duration of less than two months. While corrections are often a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as timing the bottom is very difficult to do. Fighting back can be extremely dangerous because it is quite difficult for an investor to make stellar gains during a bear market unless he or she is a short seller.

DEFINITION of 'Bull Market'

A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

BREAKING DOWN 'Bull Market'

Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. It's difficult to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets.

The above definitions are extracted from http://www.investopedia.com.

If you analyse carefully, investing during the Bear Market, you are likely to purchase shares at a lower price compared to a bull market. As explained above, during the bull market, prices are expected to rise. Hence you are able to get out at a higher price.
It sounds easy.
But it requires lots of patience and it also depends if you managed to pick a well managed and well run company that will become more profitable when the bull run comes or the economy does well.

4 Phases of Market Cycles
1) Rising
2) Peak
3) Down 
4) Bottom

As we all know the timing of the bottom of the market is very hard to identify, one of the ways to overcome this is to use dollar cost averaging technique or sharebuilders plan.

If one has difficulty picking the right stock to buy then one can consider purchasing the ETF.


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