Any investor would be aware of the terms bull and bear markets. This is particularly common when anyone is trading in Bursa Malaysia where both the markets are trends which will determine the behaviour of how you will invest in stocks. Under most circumstances, the bull and bear market would help you to invest better through its waves pattern and trend. There are many elements or effects would take place under both the market waves and if you know how the market will react, it would surely help you much in figuring out whether to inject more funds or cut your losses.
In Malaysia, the most popular era when the bull market was said to be strongest was around the 1993 to 1997 years when the country was moving fast towards industrialization and the re-positioning of Malaysia away from the agricultural sectors. This was when technology-based and manufacturing companies mushroomed and their stocks were heavily invested by people from all walks of life. However the economic crisis hit in 1997 and the bear market took over where the KLCI dropped significantly.
It took the Malaysian economy a few years before it stabilized and the bull market of 93 to 97 (which some termed as superbull market) never came about since then. Some analysts have predicted that the confidence of the market starting from February 2012 is at an all time high with the FBM-KLCI breaching its 1,600 point benchmark and many are predicting that a bull market is on its way. While the signs might show that it is, other investors are still cautious as it could be a simulated bull market where sentiments are articulated to drive more investors to trade their shares thereby automatically pushing the market to its high.
While every investor would like bull runs, it is usually hard to determine if a bull run is actually happening because you would only get certain hints or clues when the bull run is about to start. Take note that the start of the bull market is when the market is most volatile and if it survives for a longer term (where the FBM-KLCI hits 20% more of its most recent low point) then you have a bull market coming. Otherwise, it would only be a short-term positive upward market movement.
Hence, it is vital to know the difference between the bull and bear markets and to know if they are on the verge of topping or bottoming. The market is known to be in a bear wave in situations where there are widespread negativity or pessimism around the shareholders and investors. This is the time when you will find most investors getting ready to sell their stocks as they are anticipating losses. Typically, the majority of investors are thinking of cutting their losses and they are probably thinking of selling at a loss as well. The Great Depression in the 1930s is perhaps the most talked about bear market and the energy crises around the 1970s.
The price of stocks will fluctuate and the simple or minor drop in prices must not be mistaken for a bear market. Instead, this wave will incur a significant drop in the share prices (which will then determine the outcome of composite index where in our case, the FBM-KLCI) and it will go on for a quite a while. It is safe to say that if the composite index drops by more than 20% since the last time it peaked, then the bear market is upon us. This is a general sentiment although there is no definite benchmark on judging the existence of a bear market.
Investors are always cautiously looking for bear markets and at times they might be mistaken when shares are dropping over a period of time. This is the natural effects of economic downturns and crises but a bear market could also happen under normal circumstances. As mentioned, the 1970s bear market saw stocks declining and stopped heading upwards for more than 10 years. This is largely due to the prolonged drop in confidence of investors in the share market where those who owned the stocks were looking to sell them and no one really dared to buy.
Effects of bear market
One thing for sure, the stocks that you are holding during a bear market will drop in price which means that the more stocks you hold, the higher your losses would be. The most natural thing that you will think about doing at this time would be to ‘cut your losses’ and will cause some panic selling. When this happens, it will spiral and cause a chain reaction among other investors and before long, there would be too many shares sold and no one is buying or dares to buy.
If possible, you should try to keep your stocks and wait for the market to rebound although it might be hard to know when the duration of the bear market would be. If you are in need of money in the short term, then you would have to sell your stocks as early in the bear market as possible as the longer you wait, the lesser the price might be.
Opportunities in the bear market
The most significant factor of the bear market is that this is the time when you should be buying stocks and keeping them, provided that you have the sufficient funds. Logically, the bear market is the time when shares in Bursa Malaysia’ open market would be declining which means that if you can wait out the duration and when the market rebounds, then you would have shares which will be of higher price.
The rule of thumb here is to ensure that you are investing in companies which are stable and would surely survive for the next 10 or 20 years. Here, we are talking about companies like Genting Group, Berjaya Corp and YTL Group although their shares might not experience a significant drop even during the bear market. Do not be swayed into buying stocks which are very cheap because if the economy is bad, it might end up in mergers and acquisitions, particularly for smaller companies. One thing you must be aware is that a bear market is different from a Correction where it is a short-term stop-gap measure.
The symbol of a bull is often seen in front of buildings of share investment companies because that is what investors love. The bull market is the time when everything related to the share market is positive. In most cases, the bull market is said to start when the bear market ends although the former could also happen at any time in the open market. Bull markets are always associated with the rising confidence of investors in the market and this is when you will notice a lot of activities on Bursa Malaysia where trading is happening every second during the trading hours.
The Bull market is an important wave whereby investors are anticipating profits in their stocks where you will find that they are buying and selling at a faster pace than normal. During the Bull market, you will find that the economy is booming with public announcements driving investors in buying shares and such. This period of time is when you will hear of many companies announcing higher profits than usual and more jobs are created in the process. Generally, bull market or bull run upgrades the entire investment eco-system where everyone seemed to be making money.
Effects of Bull Market
The most obvious effect of the bull market is that the shares that you are holding would increase in price and value. This is most common particularly when you hold shares of companies which are well established and stable. The bull market will allow the companies to inject more confidence to its shareholders and they will most likely be announcing expansion plans, new projects, bonus issues and such all of which will strengthen and increase its share price.
This is also the time when the companies are enjoying better profit which means that they could be looking for new ways to injecting more funds and capital into their businesses. On top of that, you could also enjoy the likes of dividends or bonuses while other efforts like share splits or consolidations could also take place.
Opportunities in the Bull Market
Although the bear market exudes positive confidence among investors, there are downsides to it as you must be able to foresee when the bull run is going to end. Otherwise, you might end up over-investing and holding shares where their prices are too high. In a bull market, share prices tend to be on the upward trend and this is the time when they will rarely experience any sharp drops. Hence, they are ideal for the stop-and-go investors and are not so for the long-term investor.
If you know when the bull market comes, then this is the time to sell your shares that you have been holding during the bear market. If you have bought shares during the bear market at a lower price, you will naturally foresee that the price of your shares will be increasing throughout the duration of the bull-run. However, you must be aware of when to sell as waiting too long might cause the share to be ‘corrected’ and your profits might suffer.