Bull or Bear? Maintain a consistent investment approach

The United States is currently experiencing the longest bull market in modern history, which reached the 10-year mark earlier this year. The S&P 500 and Nasdaq stock market indexes seem to be on track to record new highs. There is a debate as to whether or not the stock market may be in for a market correction, so are we in a Bull or Bear market. Opinions seem to be divided. 

Bull and Bear Market 1 1024x724 - Bull or Bear Market?
Image by Gerd Altmann from Pixabay

Making an accurate prediction about what may happen in the future is near impossible. Investors with a long-term outlook should maintain a consistent approach. 

So, what is a “bull market” exactly? From an overarching perspective, a bull market refers to any market that is on the rise (or expected to escalate) for an extended period. It is usually met with positivity from investors. In contrast, pessimism is characteristic of a “bear market,” which is characterized by falling prices.

There aren’t any ‘single’ authoritative definitions of “bull market” and “bear market” terms. Conservative descriptions voice the rising and falling of markets. At the end of either spectrum, extreme definitions tie-down investors with supporting figures and data.

This begs the pertinent question, ‘When will it end? Is it really possible for markets to remain stable?’ It seems that the rise and fall of markets are unavoidable, but at the same time, it can be almost impossible to predict when they may occur.

A market correction can be explained as a decline in market prices of at least 10%, usually following a sustained rise. This may raise a red flag for an investor with a short-term focus. However, long-term investors appreciate the change in price. The reason for the rekindled optimism is due to a stock market correction that offers a prospect to buy prime companies at appealing prices.

Disciplined Investing - Bull or Bear Market?

A sustainable approach

It’s important to understand that the primary determinant of investment returns is the price that you pay. In a bull market, share prices are more likely to be elevated, and the concern an investment manager would probably have at this time is a permanent capital loss, meaning that there can be a risk that the share ends up being worth less than the purchase price.

During these times, you should employ a disciplined investment process and consider each holding on its merits, based on its intrinsic value. It may also include weighing up long-term opportunities from different assets while still maintaining portfolio diversification.

An investment manager should always remain aware of market sentiment. Essentially, when the markets reflect a substantial amount of distress (bear markets) or overwhelming voracity (bull markets), you ought to be at the top of your game. The mispricing of assets offers the chance to add long-term value to your portfolio when it can be purchased cheaply, as well as provide the opportunity to preserve capital when asset prices are high.

A consistent long-term valuation-based approach is founded on the principle of purchasing shares that an investment manager believes to be undervalued and sell them once you deem them to have reached their intrinsic value.