Any one who has invested their money in the stock market for appreciable lengths of time, understands that their investments will go up and down in value. This happens not just daily but hourly and sometime minute by minute. There are no guarantees, one way or another.

The Certainty Of Change

These cyclical swings in value happen with fundamentally sound investments or not. The share prices of the biggest, high quality blue chip companies in the world can go down "in sympathy" with everything else, and stay there should the news of the period be negative enough.

When changes occurs in the stock market, it's commonly referred to as a bull or bear market. In "bull markets" overall prices go up, and in "bear markets" prices go down. External, and completely unrelated events can have a profound impact on the direction of stock prices. Economic reports, Federal Reserve meetings, company earnings announcements and news events all impact stock markets.

The price of the overall stock market is often measured by their "indices". These are a representative basket of company stocks, such as the Dow Jones Industrial Average, composed of 30 large companies, or the S/P 500 which is the top 500 largest actively traded companies in the U.S.

Investment And Emotions

Investors can easily get caught up in the excitement and frenzy of a roaring bull market. In the extreme, they check their stock prices every 5 minutes when positive feelings abound and begin counting their "paper profits" while envisioning exotic vacations.

And their hopes get dashed when a sudden negative turn of events swings prices in the other direction, into a bear market. When one looks at a historical stock price chart, it’s plain to see the pattern - stock prices usually go down much quicker than they go up.

Fundamental Lessons About Bull And Bear Markets

If you follow these guidelines you'll be using sound investment principles at play:

Purchase quality investments

Make sure they have been thoroughly vetted by someone with the necessary expertise to do so. This is indeed rocket science. These are holdings that you should feel comfortable owning through thick and thin, unless some important factor specific to the company has changed. The companies that regain their losses soonest after the bear market ends, are the quality firms with strong fundamentals and operations.

Maintain realistic expectations and stay calm.

Many new investors cut their teeth during the tech boom of the 1990's. They suddenly had the ability to buy and sell stocks on their own, through Internet-based brokerages. They were, however, basically ignorant of stock investment best practices.

As a result, their expectations were unrealistically high for the long term. 15%-20% gains per year became the new norm. Unfortunately, these same investors saw huge percentages of their portfolios disappear after the subsequent crash.

Page 1 of 2 :: First | Last :: Prev | 1 2 | Next