Investing in a Bull Market: Top 5 Rules for Success | Espresso


Top 5 Rules on Investing in a Bull market

September 22, 2021
Top 5 Rules on Investing in a Bull market

As an investor, you must have encountered the terms “bull” and “bear” at some point in your journey. A bull market is the condition of a financial market in which prices are rising continuously, whereas a bear market is exactly the opposite, characterised by falling prices. Given the characteristics of the bull market, investors can be tempted to buy equity at its rising price and sell when they’ve reached its peak. While that would be a smart move, many experts believe that it is always unwise to try timing the market.

So, what do we do? How do we invest in a roaring bull market? Here are the top 5 rules you need to follow.

1 – Strategic entry and exit

Investing in a roaring bull market can be all about good timing. The idea is simple – to buy a stock at its lowest possible price and sell it at its peak. While the idea is simple in concept, it is almost impossible in deed because there is no right time to enter a trade. It is all about being strategic. Every other stock price starts rising in the bull market, but you must enter based on your strategy with an adequate margin of safety.

Strategic entry will do you no good without a strategic exit. In other words, you must sell when the value is realised. A sudden fall in price is expected in Bull markets. So, once your stock is adequately valued, it is crucial to exit regardless of how long you have held them. Investors should also watch out for any change in trends or patterns. This will help them take an exit decision on time and protect their profits or minimise losses.

2 – Use your asset allocation plan to guide you

We understand your “Fear of Missing Out”, but you must fight through your FOMO and stick to the desired asset allocation. Do not forget that the primary objective of asset allocation is to minimise volatility and maximise returns. Thus, it is the key to safe and successful investing – especially from the long-term perspective.

In a roaring bull market, the equities may outperform debt substantially, but it is still not recommended to risk all your money in equities. So, should we just sit out the roaring bull market? No. While sticking to your asset allocation in principle, you can be overweight by about 10-20% in equities to take advantage of rising prices. The key here is to monitor your portfolio regularly and rebalance the portfolio to your original allocation in due time.

3 – Stick to high-quality names

The temptation of fad investing is real in a bull market, but you should stick to the rule book and invest in high-quality stocks only. Fad investing is done based on some temporary trend regardless of the actual company prospects. An investment decision is not a fashion choice and must not be treated like one. Follow this golden rule of investments – “always be wary of any strategy that promises easy money”.

4 – Focus on earnings

Investing in a bull market can be tricky because investors with a long-term strategy often forget about the importance of booking profits at regular intervals. It is always safe to assume that your long-term investment can result in long-term loss because even a bull market doesn’t steer away from the market’s true nature – unpredictability. If and when the bull market gets hit by downward moves, the losses can easily be avoided if you do not fail to book profits on time. Also, booking profits regularly does not mean you are out of the long game. You can always re-enter, you know!

5 – Remember who you are

As a skilled investor, your decisions need to be based on strategy, analysis and research. A bull market may steer you away from reality and boost your confidence, but always remember to rely on your skill more than your luck. This will help you to avoid the temptation to churn your portfolio excessively and stay with your winners.

Even if you go by the book and take strategic decisions, you can make mistakes. In such a scenario, you should exit as soon as you realise it. Get rid of the stock immediately and do not wait for a better price.

Investor confidence tends to climb considerably throughout a bull market period. There is an increasing demand for stocks, and the general tone of the market remains optimistic. New investors are joining the game and the existing ones are excited to take advantage of rising prices. With so much going on, it becomes very crucial to stay focused and remember your investment goals. A roaring bull market comes with massive opportunities and following these simple rules can help you take advantage of them.

Happy investing!

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Do’s and Dont’s issued by Stock Exchanges and Depositories before trading on the Stock Exchanges. Brokerage will not exceed the Exchange prescribed limit.

R. Kalyanaraman
by R. Kalyanaraman

Chief Executive Officer

I am a sales guy at heart with utmost willingness to listen to people – customers, employees, competitors et al. Nothing gets me a bigger adrenaline rush than an interesting conversation with my customer!