There are cycles throughout life. However, the ability to foresee an oncoming stock market cycle is a talent some never acquire. Most often, investors fail to realize when things are going really well in a Bull market, it is destined to change. And, even those who recognize that there are stock market cycles; find it almost impossible to determine what’ll be the top, and when the bottom will fall out. Diversification of portfolios is always the recommended strategy.
Stock markets have boom years, and years when they fall. Recently, Kerry Balenthiran identified a 17-year stock market cycle.
Different kinds of investments should be included, such as technology, health care, energy, and yes, include some bonds. Most people do not think too highly of bonds. However, it is a safe haven when the bottom starts to abandon the stock market.
Continuing In This Direction..
When beginning a stock portfolio, choosing five or ten really good, solid companies, particularly those who are well managed, should perform very good for the investor. It’s not wise, however, to hold onto the ‘big winners’ forever. It is a good policy to sell a couple while they’re still high in value, since an unexpected cyclical market change could cost a great deal if the stock declines rapidly. However, be willing to pay capital gains taxes on the profits from the stocks you sell.
When the bear market is at its worst, some investors become disgusted and are petrified at what their losses will be. Their emotional trauma is understood, since nothing in the news is good news and mostly predictions of ‘the worst isn’t over’. Their decision to get completely outside of the stock market, retrieving whatever capital they have left, however, is a bad idea.
The long bull market ended in 2000 and most stock brokers advised that investors should make long term investments. This was a good choice for a bull market but definitely the wrong choice for a bear market. The stock market entered into the secular bear market in the year 2000 and will last at least another 10 years.
The rally which started in 2003 and continues into today is a cyclical bull market within a long term secular bull market. Investing and holding in long terms stock won’t create a profit on this kind of market.
Due to the constant bull and bear cycles during a secular bear market you must be extremely careful in what investments you make. You must also be prepared to sell at short notice if the market turns against you. The erratic behaviors of stocks in bear secular markets makes it high risk to invest, however high risk means high profit if you understand how to purchase and sell in the right markets.
Investing during a secular bull market is far more stable and predictable then secular bear markets. At the end of 2006 a new cyclical bear market is going to start and last at least another 3 years, this means the best and easiest time to invest is on the bear side of the next two years.
The savvy investor and the experienced traders, as well as those who’re just greedy, take this opportunity to accumulate some pretty valuable stocks with potential to soar upward again when market confidence improves. Sometimes, speculation pays off when looking at how a particular company’s financial strategy may be improving, for example, through changing management. Gradually, a slight upturn is noticed in the trading which may encourage others to ‘get on the bandwagon’ and begin investing again.
After a short time the gradual increase in the market slows down and other investors to use this opportunity to pick up some values in the market while prices are still reasonable. The bear market begins to take on a bullish attitude, on the basis of upward mobility and the media starts reporting a ‘light at the termination of the tunnel’ and predicting that the worst has passed.
Keep stock market cycles in your upper mind as you trade. Now, those who’ve taken advantage of the decline in stock market prices and loaded up are deciding to sell and take their profits. This is known as the Distribution Phase, and can last from a week or two to several months. Then the more painful falling prices of stock returns, in the markdown stage. And it starts all over again. The time is right for the astute investor to pick up some great values in the Bargain Basement Sale.