The bull market cycle creating equity market making headlines each day with new index records is an attraction for many. Most first-time investors and traders join the stock market during this market phase.
The bull market is generally one where the stock market is rising or is expected to rise. Most investors fall in the bullish category, where the optimism of the rising market prices is the attraction. Typically, the economic factors of the country are strong and stable with a potential for growth here.
The daily highs in the bull phase propagated by anyone with profits to show can be an exciting time for investors. While the driving optimism during the bull market cycle is to be able to buy at lows and sell at highs, there is also the constant fear that the stock has reached a peak and could trigger corrections thwarting the hope of being able to sell at highs.
While there is no wrong answer in evaluating the above effects on your portfolio during a bull market cycle, there are a few errors you can avoid.
Here are the top 5 mistakes that can be avoided in the Bull Market which can help you thrive through the bull market cycle –
1. Forgetting the Fundamentals
While the bull market enables feathery stocks reaching new heights too, it is crucial to not be misled by them. The exciting highs during a bullish trend can easily make price the deciding factor in determining a good stock to invest in. A high price is no guarantee of a strong stock, it is important to understand the reason behind the high valuation. Rising prices without strong fundamentals can face sharp alterations in the future.
Ignoring whether the stock can stand the fundamental test can lead to diminishing returns in the long run when the highs peak and the market corrects. While it is difficult to predict which stock will survive the different market tests, the one with a strong fundamentals is always a better bet.
2. Pressing Pause on the SIPs
A common mistake during the bull run is to assume that investing directly in stocks is going to generate higher returns than continuing the SIPs. Mutual funds offer a diversified portfolio designed to sustain market volatility with little time, effort, and knowledge on part of the investor.
Getting restless and infusing the liquidity after foregoing SIPs directly into the market without sufficient knowledge can prove to be a risk not worth taking in a bull market. Jumping ships drastically and expecting the stock to be able to perform equally if not better than the SIP is an idea that seems farfetched with no guarantee.
3. Getting greedy
Timing the market, for both bull and bear markets is where most of us fail. Understanding when to enter and exit the market and following its trend is not as easy as it sounds. Joining the bulls in the market can easily change your exit strategy in anticipation of higher profits or the red converting to green. While holding the long position i.e. expecting the stock value to rise in the future is the general sentiment when the market is bullish, it is important to keep checking the portfolio for losers too.
Not every bad apple is a black sheep, most just rot further, bringing the entire portfolio down. It is crucial to be able to exit from the top performers as well and not hold on to the stock in the hopes that there will be a new high and you will be able to ride it.
4. Thinking the highs are the new normal
The Bull market known for soaring returns, makes investors believe that these new highs are the expected market norm. Thinking that abnormal gains are the standard market gains makes investors believe that their entry point is still early in the trend encouraging them to hold off until the new normal is achieved. Getting carried away by the new gains in the portfolio can lead to losses eventually.
You must note that in the long run the returns are averaged by the abnormal gains and corrections of the bull and bear markets. Chasing short-term increases and expecting them to hold steady is an unrealistic expectation that will surely lead to disappointment.
5. Constantly Changing Investment Strategies
The news about daily new highs can easily make the most risk-averse investor change his risk appetite. While it is important to evaluate your strategies based on the market, the bull market tends to ignite the fear of missing out on the gold mine of daily highs that can lead to emotional investing.
Here are some of the common errors in strategy switching that can be easily avoided – Blunder of investing only in a particular sector because it is soaring without understanding if the rise is sustainable or is on the verge of peaking, accumulating stocks is another mistake investors can make.
After all, they have created new highs or lows for themselves and expect them to outperform again, entering new products such as F&O derivatives without enough knowledge of same, adopting never tried before strategies such as intra-day, short-term trading without really understanding the risks associated with them, etc. Rather than constantly changing strategies it is advisable to keep evaluating your current strategy and change if it is underperforming.
Coined to be the glamorous side of the market attracting investors from all directions, a bull market can easily turn out to be a slippery slope if not ventured into carefully. But keeping the fundamentals close, being vigilant, and moving with the market momentum can make the bull ride an enjoyable one for you.