Core Concept
The stock market cycles between Bull (rising prices) and Bear (falling prices) markets. An intelligent, educated investor understands these conditions and acts strategically, basing decisions on knowledge of their specific stocks rather than on emotion or market sentiment alone.
Key Differences: Investor vs. Trader
An investor is attached to the company, understands its business, and can distinguish between a general market decline and a company-specific problem.
This knowledge puts them in an advantageous position to make informed decisions during market volatility.
Bear Market (Down Market) Strategies
When the market is falling, you have three main options:
Sell Immediately: To minimize potential losses.
Hold and Do Nothing: Let the market correct itself without taking action.
Buy More (Opportunity): If your analysis confirms the company is still sound, you can buy more shares at a lower price to benefit from the decline.
Bull Market (Up Market) Strategies
When the market is rising, you have three main options to protect against an inevitable correction:
Sell a Portion: Sell some shares at the inflated price to lock in profits.
Hold and Do Nothing: Remain invested without taking action.
Sell for a Profit: Take full advantage of the high prices and exit your position.
A Key Bull Market Tactic:
Sell a portion of your stocks at the high bull market price. After the subsequent market correction drives prices down, use the proceeds to buy back more shares than you originally sold. This reduces your average cost per share and increases your number of holdings.
Final Piece of Advice
Base your decisions on knowledge, not feelings. Being thoroughly educated about the companies you invest in and their industries makes market conditions less important, as you can confidently discern real problems from temporary market noise.
