You may have heard the term bull market or bear market in relation to the share markets, but do you know what they mean?
A bull market refers to when share prices are rising or are expected to rise. There is confidence in the market, investors are optimistic, new companies are listing their shares, and there are no catastrophes expected that will affect shares continuing to rise into the near future.
Coming out of the GFC, Australia has been in a long bull market for several years. Share prices have risen, and many investors increased their wealth either by owning direct shares, or indirectly via their super or managed funds.
A bear market is the opposite of a bull market. Investors are pessimistic about the near future, share prices are falling as there are more sellers than buyers. The media where quick to call the market bearish in recent days.
Many investors believe that market timing is the key to creating wealth in share markets. That is, that they should buy low (in a bear market), and sell high (in a bull market) therefore making a profit.
However, knowing exactly when to buy and sell is not that simple. We humans are an emotional lot. Many (too many) investors sell in a bear market as prices are falling because they fear making a greater loss, and then buy in a bull market because they fear losing out on greater gains. So they buy high and sell low, guaranteeing they will lose money. This type of investor is called a pig, because they go to the market to get slaughtered.
Don’t get slaughtered. The safest way to prevent making these mistakes is invest small sums on a regular basis, increasing the amount during bear markets if possible. In this way you will buy bucket fulls of shares when the market is low, and thimble fulls when the market is high. Choose only great Australian and International companies that you want to own for the long term, and tune out the noise from the media.
So right now, are you buying, selling or squealing?