I’ve been studying the stock market and investment principles for years.
In the era of COVID-19, expert and novice traders alike should be studying and reassessing what they think they know too.
The golden rules of investing are to:
- Buy low
- Sell high
- Recognize value others ignore
- Accept it may take year to get an appreciable return on investment
- Don’t make decisions based on hype, trust your research, and assess market conditions
However, no matter how much research you do, no matter how prepared you are, you must pay attention to the market.
You can only implement the golden rules of investing relative to the directions of the stock market.
Are you investing in a bull market, or a bear market?
Confused by those terms? I used to hear those terms on financial news all of the time and was clueless too.
The only way to take advantage of the opportunity is to recognize the environment in which it appears.
In a bull market, stock prices are rising or are expected to continually rise. Think of the raised horns of a charging bull.
The COVID-19 pandemic, and the ensuing global economic crisis caused by it, ended the 11-year bull stock market in the United States. It lasted from 2009 to 2020 and was the longest period of economic expansion in American history.
I am planning to invest in the tourism industry soon. So, what does that mean in a bear market?
Time will tell.
But if you’re struggling with these terms, I’ll explain a bear market and offer some tips.
What is a Bear Market?
The origins of the term are nebulous.
A bear market occurs when stock market indices, like the NASDAQ or NYSE for example, experience extended periods of price declines of 20% or more relative to a recent high. Bear markets are indicators of widespread investors feelings of non-confidence and pessimism.
“Bear market,” as a term might have originated with the symbolism of downward pointing and attacking claws on a bear’s paw.
This term, and the symbolism it represents, is indicative of the market’s direction.
Legend has it the term started in old-world trading outposts.
Crafty traders implemented a proto-futures market where they sold skins they had not paid for yet.
Desperate trappers would then sell to traders at prices much lower than the price the traders had already pre-sold the goods for.
Bear Market Navigation Tips
Over 40 million people applied for unemployment benefits over the past 9 weeks.
Trying to trade on the stock market is an inexpressible luxury for many now.
Keep these things in mind if you’re fortunate enough to attempt stock market trading during an pandemic.
Bear markets occur in cycles, but their duration isn’t predictable.
Bear markets occur about every 56 months as a general rule of thumb. According to S&P 500 research, such trends have occurred since 1932.
Bear markets can be initiated by increased interest rates, surging inflation, a declining economy, and so on.
The most recent one was caused by the pandemic.
The worst bear market in history occurred in 1929. It was the global stock market crash that ushered in the Great Depression.
Investors usually invest in gold and precious metals during bear markets as safe investing harbors.
Or, they strategically invest in securities like bonds, depending on the market.
Your best bet in a time like now is to research the market and find value others don’t recognize.
As for me, I know people will start traveling again in a few years. So, I will invest in tourism soon.
This bear market won’t last forever.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.