Should One Do Care About Bull and Bear Markets?
Smart Investors always know What should do
Whether , you should care, in which market you are investing , a bullish or bearish. It is popular financial media , of any country , that label market as a bull or bear. By this term you can judge what is actually happening with the stock.
It is absolutely true, that decline of overall market may also affect your stock. However, a smart investor , with complete homework is aware of the diversity between a common market decline aw well as something wrong with his stock .
High & Low
In bear market, you look stock at the lowest point, that can do quite well later, and in a bullish market , look at the stock that could not perform even in bull markets. Because it is not necessary that in bullish or bearish market stock has performed according to the market trend.
If you have complete knowledge of any company’s stock, then you can easily judge that the decline of stock price is due to a correction of the market or something , really going wrong with the company’stock.
Knowledge is must , before making decision:
• Sit away and allow the market solve its problems.
• Accumulate the stock when price declines , but also make sure that nothing wrong with the company’s stock.
• Book the loss before worse
• In the bullish market, if your stock moves with the market trend , it may become overpriced , but significant decline can be seen in it when the bullish trend ends.
A few options:
• You sit away and wait until the market corrects itself
• You must sell a little stock and buy them again when the price comes down
• You must book profit on higher priced stocks.
For example, you have 500 shares which you purchased at $ 25 a share and only bull market has pushed the stock at rate of $ 40 a share.
You are interested to keep the stock, but you are also concerned that if the market corrects itself the price of the stock may go below $ 25 a share.
Your strategy should be selling of 250 shares at the price of $40 a share. In this way, you will have gross income $10,000, After paying capital gains tax (20%) you could have $8,000, that you can invest in money market.
When any fall comes on the market , you can buy back at a low price. For instance, that stock falls to $20 a share. Your booked profit $8,000 would make you able to buy 400 shares.
Now, you possess 650 shares and the cost of a share has declined from $25 a share to 22 dollars a share , and you did not spend a penny extra.
The smart investor ever makes investment in the base of his or her knowledge .If you have sound knowledge about the company, bullish or bearish market does not make any difference.