A bull market is a market in which buying predominates, resulting in a steady, persistent increase in asset prices.
Stock markets go up and down every day. Historically, prices have trended higher with occasional dips along the way.
When a stock market increase is sustained, investors call that a bull market.
There is no obvious marker that define a bull market’s start or end. Nevertheless, a general rise in stock prices across several market indexes with few, relatively short periods of decline are hallmarks of a bull market.
Bull markets can be eerie. As buying continues, market pundits look for reasons that a bull market cannot continue. And yet it can, for many months more, even years more.
It’s impossible to forecast a bull market and equally impossible to estimate how long one will last. Nevertheless, bull markets do go on for several years at a stretch.
Bear markets, the opposite of bull markets, are far shorter, usually ending within a few months.
That’s because bull markets operate on the principle that companies work to overcome inflation by improving how they allocate of capital. Some factories close and others open. Jobs are created or lost.
Because managers make tough decisions, investors believe their invested capital is will grow. Absent evidence that the economy itself is working against all companies, bull markets tend to thrive.
Short of a negative global event or widespread economic malaise it’s very hard to demonstrate that private capital is failing to allocate efficiently. Investors may change their collective view of which companies will thrive, but they tend to remain invested.
Predicting the end of a bull market is risky. It can lead to market timing, a proven way to lose money in investing.
If you sell all of your stock investments to cash and the market rises over the next year, that’s money you “lost” by not being invested.
The key to success in long-term investing is to recognize the unpredictability inherent to any crowd-driven process.
Owning a risk-adjusted portfolio and rebalancing allows the serious investor to enjoy the benefits of the longer bull runs while minimizing the damage when a bear market attacks.
MarketRiders, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.