Wednesday, August 24, 2011

The Bull Vs The Bear

In a bull market, the market ignores bad news. In a bear market, the market reacted on bad new, not-so bad news, all kinds of news! In March 2009, the beginning of a bull, people refered to any rallies as bear rallies. They were in a terrible bear trend and couldn't believe the bear was over, so when there were some rallies, they called it the bear rallies!

Now, I see similar reaction here in August 2011, we have enjoyed a superb bull run for over 2 years, and suddenly the sign of the fear struck and we are now wondering is this still a bull? Whever investors start to have this thought and as their thoughts get stronger and stronger, these thoughts will menifest through self-fufilling which weaken the bull and finally give way to the bear!

By human nature, we always find ourselves in the state of denial and thinking that we are still in the same old condition as before. But evidence showed that even if we are in the bear trend, we won't realise untill several months later when we see that the stock prices testing for year lows.

Investing in bull market is easy: buy low, sell high! But investing in the bear market requires more skills because in a bear trend, companies get smaller earnings per share with gloomy outlook, and technically most stock are trading below 200 days moving average, all these discourage you to buy in a bear market. One way to overcome this is to buy your favourite stocks (preferably blue chip stocks with good management) in stages. It is important to invest through stages because you never know when is the bottom, so as the prices go lower, you kept buying. The key here is to overcome your fear by having a system in place so that you act as a robot rahter than a human!

Happy investing,
Pauline Yong

1 comment:

LCF said...

...on in other words, value averaging in a bear market for blue chips, if the investment capital permits.