Keep Some Powder Dry

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.

Since the Global Financial Crisis, Australia and much of the Western Worlds share markets have been in a long bull market. Share prices have risen to record levels, and many investors have 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. When the US credit crisis turned into the global financial crisis, world share markets quickly turned bearish.

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.

When you have above average returns for several years, it stands to reason you should inevitably expect below average returns at some stage. That is the time to buy shares in the World’s great companies – when their prices have temporarily fallen below fair value.

Do you have cash set aside ready to buy or increase your regular investing?

Keep some powder dry – have some cash ready to buy great Australian and International companies that you want to own for the long term