Wondering how prudent investors act in a bull market? Here are some tips:
Don’t try to time the market.
It’s almost impossible to tell when the market is at its peak, and even professionals rarely manage to call it right. You might not only end up selling too late — but you might also end up selling way too early, missing out on future profits. Better to enter and leave the market gradually, without drama — or according to your own preset benchmarks — rather than selling all at once because you’re convinced it’s reached its top. If you follow a buying strategy like dollar-cost averaging, stick to it.
It can be tempting to go all in a hot stock or sector when the market has been growing, but the end may be closer than you think. If you’ve only bought the biggest so-called winners, you may find that their pumped-up prices evaporate the most quickly. A super-strong bull market can make even weak companies appear like sure things — until they aren’t. Be sure you know what it means to diversify effectively, and keep in mind that reacting to news about individual stocks or companies isn’t the best way to figure out where to invest.
Pay attention to the all-mighty consumer.
Companies that sell products directly to consumers (as opposed to industrials) have proven themselves over decades. Bull markets in recent years have tended to be powered by such companies, but more importantly, they may be a decent safe harbor during downturns as well. Consider investing in these equities, or in a large-cap mutual fund with such stalwarts.
The financial takeaway
It’s impossible to predict exactly when a bull market will end. But it always does, after an external force affects investors’ feelings about the future and stock prices start to look too pricey.
Despite the inevitable dips, over an extended time horizon, the stock market has never failed to rise. So not being invested in the market means missing out over the long haul. Like a savvy matador, individual investors should keep an eye on the bull’s moves, and adjust accordingly — but always stay in control of their overall strategy and goals.