It is an unverified historical belief that bear and bull markets were named after the way in which a bear and bull attacks. Bulls tend to thrust their horns up into the air, while a bear will swipe down. These actions were then related metaphorically to the movement of a capital market: if the trend was up, it was considered a bull market; if the trend was down, it was a bear market.
A bear market refers to a decline in prices, in a single security or asset, group of securities or the securities market as a whole. In a bear market, the economy tends to be weak. Consumers spend less, which results in lower business profits. This tends to devalue a given company’s stock. Investors tend to sell their stocks before the value decreases too much. Investors don’t want to take risks because they don’t feel good about their chances.
A bull market is a rising market. In a bull market, investors are positive. The economy tends to be strong. Consumers are spending money, which increases business profits. When businesses profit, investors demand to share a piece of the pie they buy stocks and hang on tight to watch the money come in. The supply of shares, then, is low no one wants to give up their piece of the pie. The competition to acquire those much-coveted shares becomes fierce, which drives the prices up even higher. Investors take risks because they feel good about their chances of making the big bucks. The best strategy to make money in a bull market is to recognise the trend early and make smart buys. Buy low and sell high.
In a bear market, investors can hunt for dividends. A dividend comes from a company’s net income, while the stock’s price is dictated by buying and selling in the stock market. If the stock’s price goes down because of selling yet the company is strong, still earning a profit, and still paying a dividend, it becomes a good buying opportunity for those seeking dividend income.
Bear markets should not scare investors. Good stocks come out of bear markets, and they’re usually ready for the subsequent bull market. So they should not be so quick to get out of a stock. Just keep monitoring the company for its fundamentals (growing sales and profits and so on), and if the company looks like it’s on a growth path, then hang on. Keep collecting your dividend and hold the stock as it fluctuates into the long-term horizon.
Moreover, certain market conditions like bear markets which require investors to take quick action. This is made simple by the C-TRADE platform which enables any Zimbabwean in and out of the country to buy shares anytime anywhere without visiting a stockbroker. C-TRADE has eased the way investors do business on the capital market. Investors do not need to physically visit their respective stockbrokers. Investors only have a virtual interaction through the online and mobile trading platforms. C- TRADE has introduced investor interface tools such as a Web Portal which is only accessible to retail investors. The Web Portal offers an advanced interface which allows investors to participate on the exchange in real-time through personal computers and gives them rich stock market information. There is also an app-based solution for retail investors on smart phones. The USSD-based solution is targeted at non-smart phone users and integrates mobile money services. To find out more about C-TRADE visit www.ctrade.co.zw.
Moreso, compounding returns are extremely powerful over the long run, and the earlier one gets started the greater their chance is to take advantage of bull and bear markets. Put more simply this is the power of the time value of money. Regular investments in an investment portfolio or a retirement account can lead to huge compounding benefits.