You must have heard many news like – market dropped due to some political upheaval in the middle east or the market soared due to some referendum free mind map in Europe. In the age of globalisation, all the markets and businesses across the world are intertwined, hence any geopolitical event has the potential to move the global markets.
But where does that leave the investors? What should be their ideal approach to counter such uncertain situations? The good news is – whether markets fall or rise, it’s an opportunity for the investors. Here’s how.
Investors In The Market Cycle
The reason we say that whether market falls or rises, it’s always an opportunity for the investor is because if the market falls, all the stocks on your watch-list, most likely, will be in the buying range. And when the market rises, it’s a perfect point for you to sell the stocks which have reached their target price.
The key point is – if you have a long-term perspective in stock investment, it will be your armour against all the uncertainties of the stock market.
Let’s take a look at the market phases which comprises the market cycle.
The Bear Market
The bear market is a market condition where the prices of the securities fall considerably and the market goes through a significant downturn. In such situations there is widespread pessimism about stock prices and a lot of panic selling takes place which further escalates the downturn.
Though it’s a nature of the market to swing up and down, intraday traders and short-term investors, who deal in huge quantities, have no other option but to sell their holdings to minimise their losses.
However, long-term investors have an advantage in this phase, as they can choose to hold their stocks while they also have an alternative to average their existing stocks and buy new stocks. Always remember, the bear market is a perfect opportunity to enter the market and build a robust portfolio.
Market Accumulation Phase (Consolidation)
This phase takes place after the markets have hit the bottom and some value investors think that the market situations is good to buy as the worst is over. Valuations of stocks are very attractive in this phase while the market sentiment is still bearish. Which makes it an ideal time to enter the market. In the accumulation phase, prices are flat, as the disillusioned sellers start selling while the wise investors pick it up at a healthy discount. Owing to such turn of events, market starts to pick up.
To get through such phases, investors should just be patient and hold their stocks. Giving in to your impulse of selling stocks due to continuous consolidation will only bring you losses. It’s just a phase which passes sooner or later.
The Bull Market
The bull market simply means that the market is on its upward drift. The market index goes high and all the major stocks start soaring. This is the phase investors invest for. One thing investors should ensure while going through this phase is that it’s not a buying period, it’s the time to review your portfolio and sell stocks which have reached their target price. In a way, all the investment, and calculated risks you take while the market was down pays off when you reach this phase. If you make the right choices, you will be handsomely rewarded.