Taking advantage of the opportunities in front of you helps make your investment efforts worthwhile. In order to understand how to recognize an investment opportunity, and to invest properly, you should have an understanding of two key concepts, the bull and bear market.
Before you make your first investment you should have an understanding of what type of a return you can expect to receive, and why. You cannot aimlessly put your money into a variety of investments and expect to receive a substantial return. Smart investors take a calculated risk in order to minimize loss.
This article will help you learn the difference between a bull and bear market and how you can approach investments in the future.
Bulls vs. Bear market explained
A bull market is seen as a period of time when there is big investor confidence, and the price of a particular investment continues to grow in demand and value. Bull markets are named after the animal because a bull attacks by thrusting its horns upward. A true bull market occurs when a particular investment has grown in value for an extended period of time, not over the course of a few weeks.
Bear markets are the opposite of a bull market; this is where investments look to have no value and are seen as not worth the time and effort to put money into. A bear market describes how a bear attacks, by swiping its paws down.
During a bear market, confidence in a particular investment has been down for quite some time, and it does not look like it will go up in the near future. Allocating money towards an investment that is in the middle of a bear market is seen as a big risk.
Understanding market cycles
Every market goes through a cycle of being either a bear or bull market, it is inevitable. Here is an outline of how each investment progresses:
- The investment starts to catch the interest of people. It slowly grows in value of the course of several months, but does not have enough confidence from most investors who are not familiar with it to gain any real momentum. News publications may take not of its growth, but the momentum has a chance of fading.
- This is the point in time where an investment gains all of its momentum and continues to grow in value over several quarters. Everyone is raving about the investment and trying to get their fair share. It is easy to buy and sell during the peek of a bull market. People who held on to the investment for some time can make a considerable return, while short-term investors can also earn a quick turnaround profit. At this point in a bull market, everyone knows this is a must-have investment.
- As with any investment, the hype starts to die down at some point. An investment will eventually start to lose its value in a bull market. There is much speculation about whether or not the investment will rebound, but in the end it slowly takes a dive in value.
- The last part of the cycle of an investment is when it enters the bear market. The investment has no investor confidence and has gone down in value, and everyone knows it. Little money is put into an investment during a bear market, and the money that is put into an investment is seen as a big risk since there is no guarantee that an investment will grow in value.
Don’t overlook bear markets, they can provide you with great opportunity
There is still hope for an investment when it is in the middle of a bear market. Read the news, look into global trends, and keep up with market news to see if you can catch a valuable investment that is being overlooked.
If you are interested in learning more about stocks, you can even create a virtual stock market account to test your abilities. There are practice programs available that let you make investments with fake money; all of your investments track the market and give you live updates on the true value of your investment decisions.
Using a practice stock trading program is a great way to figure out if you have an eye for bear markets that will one day rebound. By choosing the right investment that will one day rebound and grow in value, you can yield a high return.