Global Courant
When you first invest in the stock market, you will most likely hear about two types of markets: bear and bull. A bear market is one that typically goes down, with negative activity and bad forecasts. The contrasting bull market is one on the upside, with likely positive forecasts. The natural reaction in a negative bear market is not to invest, while in a bull market the reaction would be to follow the crowd and throw your money into it. However, this mindset is paradoxically illogical, and this article explains why.
One of the most spectacular booms and busts in bull market history was the growing Dotcom bubble in the late 1990s, followed by the spectacular crash from March 2000 to October 2002, which removed approximately $5 trillion from its value. of technology stocks and shares. What ostensibly happened in this case was overwhelming speculative sentiment about the Internet’s potential, with hundreds of companies emerging with similar business plans and securing investment. Venture capitalists saw the rise of these stocks and wanted to get started quickly, bypassing normal restrictions and caution, while also increasing the value of stocks even further. As more and more people jumped on the tech bandwagon, prices skyrocketed until finally the bubble burst, destroying the value of many people’s investments.
The Dotcom Bubble is a classic example of when bull market sentiment gets completely carried away. Prices rose, more and more people jumped on the bandwagon, which drove prices higher, and then prices crashed. When times start to get good and you see other people making a fortune, it’s easy to get tempted by rising prices. Imagine you invested in the NASDAQ around the peak of 5,000 points in March 2000. Within almost two weeks you would have lost 9% of your investment, while within a year you would have increased the value by about 50% see it fall.
The thing to learn about bull markets is that it’s hard to know when it’s going to run out. The key is not to go with the flow of the market and invest in times of rising prices. If you were to buy on a rise and then sell when the market starts to fall, you would be following the illogical investment policy of buying high, selling low, losing money instead. Instead of this strategy, a better strategy is to watch closely for booming markets and wait for them to run out and start to fall. When stocks become too expensive, as tech stocks did in the Dotcom Bubble, they will inevitably burst, but buying in the wake of a collapse can lead to a bargain. Buying during bear market periods is therefore a more likely way to find a buy-low-sell-high strategy.
If you want to invest, the current bear market in stocks indicates a good time to buy. Warren Buffet, the richest man in the world largely thanks to his investment strategy, has said there’s never been a better time to buy US stocks, while in the UK the FTSE 100 is worth just 60% of what it was at this time last year . If you want to learn more about investing, take a look at Legal and General.
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