How to Invest in a Bullish or Bearish Market?

The terms "bear" and "bull" are enigmas in the stock market. Every investor, rookie or expert knows about their usage and their importance. Despite this, predicting and navigating the turn of events during both trends is difficult to apprehend.

If you are new to investing and unfamiliar with these terms, let's revise them.

When things are going great in a stock market, the bulls are in charge! They charge forward with horns held high, sending stock prices soaring through the skies. This is a bull market! 🐂

But the market, looking for balance, often dives down towards the land, sending prices tumbling as pessimism spreads. This is a bear market! 🐻

By looking at them initially, you may think that a bull market is the best thing to happen to an investor, whereas a bear market is the worst. But that's not always the case.

As unpredictable as it is, the stock market sometimes makes investors' portfolios look green on bearish days and deep red on bullish terms. How does this happen, you ask? It's all about permutations and combinations of the right strategies and fundamentals.

That's what we will be discussing in this article.

How to Invest in a Bull Market?

The bull is raving and ready to charge high in the sky. You and I both know what this means. So, how do we capitalise on this occasion? Let me tell you. 😌

a. Don’t Deter from “The Plan”

Successful investors like Warren Buffett and Radhakishan Damani never get tired of advising people to follow it. But if you think I will reveal some ultimate plan to ace the market in the next paragraph, then I am sorry to let you down. 😥

Every investor is different and has different goals to achieve and, thus, should have different strategies. For this, Recipe by Finology will help you. Based on your financial profile and other factors, plan your ultimate strategy and stick with it.

The raging market might entice you to divert from your path, but stay put. What you can do is increase your investment amount a bit to get better gains.

For example, if you invest ₹5,000/month in SIPs, you can add ₹7,000 or ₹8,000 based on your budget for the month when the market is bull’s high. 💰

b. Focus on Growth, Always

Unlike popular opinion, the stock market is not like a gambling round played in a casino. It is a fantastically twisted web of financial figures, trends, and future prospects.

Suppose an investor finds a company's ongoing projects or motto optimistic in both the short and long terms. In that case, they give it an upward boost and vice versa. It’s as simple and direct as that. 🔼

So, you have to keep your focus on finding investment opportunities with growth prospects. Regularly analyse current affairs related to the stocks in your portfolio or watchlist and their financial statements.

Companies with a history of strong earnings growth and the potential for continued expansion usually outperform in a bull market. So, don't unquestioningly pool your money on the stock everyone’s buying, as there is a high possibility that you might have missed the momentum rally.

After all, the one thing fixed about a bull market is that the market rally reduces, and things start going down. 📉

You can always choose companies from the fastest-growing industries in India to take advantage of the bull market.

c. Finding a Diamond in the Rough

There are certain sectors and stocks in India that are considered safe choices among investors. I am talking about the usual first-choice stocks like Asian Paints, HUL, Reliance Industries Ltd., etc.

But, behind the scenes, many of these stocks are overvalued or rise with a predictable margin of 10-15% in a year. Not that being safe is a wrong choice, but it could be a waste of the bull market we are discussing.

The upward rally of the market is an excellent opportunity to trudge unmapped grounds. You can look at mid or small-cap stocks that haven’t been discovered yet. The stocks with solid fundamentals could give significant returns during bull runs. One moment of caution: such companies are prone to be risky, so be aware and choose based on your risk appetite.

How to Invest in a Bear Market?

Bear markets bring challenges and lots of pessimistic rumours, but for savvy investors, they also present opportunities. Let’s see how you can benefit from a downward rallying market.

a. Reassess your Portfolio Accordingly

Just like we switch from woollen to light clothes as per the season, our portfolios also need trimming and tweaking. This habit is one that most successful investors possess.

A bear market requires laying down low, and what better way to do that than by checking if your diversified portfolio aligns with your current comfort risk level?

Consider increasing the proportion of defensive assets like bonds or government securities if needed. Avoid panicking by seeing the falling market and hold your horses for the stocks you believe in.

You don’t want to lose a good prospect due to a short-term downfall.

b. Horde up Risk-Averse Securities

As the famous saying goes, investors should avoid putting all their eggs (funds) in one basket (asset). To mitigate risk, spread your investments across different asset classes, sectors, and regions.
This technique especially proves to be a God’s blessing during bearish markets when a particular class, say equities, are diving down. Your investments in bonds or securities will help you balance out the losses splendidly.

c. Tax-Loss Harvesting

Tax-loss harvesting is a strategic investment technique used to reduce your tax liability by selling investments at a loss to offset capital gains. It is very similar to finding silver linings in losing investments!

Here's how it works:

1. You hold an investment (stock, mutual fund, etc.) that has decreased in value since you bought it.
2. Instead of letting it sit there, you sell it at a loss. This "locks in" the loss on paper.
3. You use this realised loss to offset any capital gains you may have from other investments you sold for a profit. This reduces the amount of capital gains tax you owe.

Tax-loss harvesting shines during the bear periods, allowing you to turn investment losses into tax savings. This potentially boosts your long-term returns.

Ultimate Strategies Fitting both Bull & Bear Trends

Surprised, right? How can any strategy be helpful in dealing with the bull and bear markets? But there are a few methods worthy of being the evergreen choice, regardless of the market trends.

a. Rupee-Cost Averaging

Rupee-cost averaging refers to investing a fixed amount of money at regular intervals (weekly, monthly, yearly) regardless of the market price of the investment. This approach aims to average out the cost per unit you acquire over time, reducing the impact of market volatility on your overall investment.

Systematic Investment Plans (SIPs) are a direct method of utilising rupee-cost averaging. This approach will allow you to keep following your original investment strategy without facing the brunt of losses, especially when used during a bullish market.

b. Right Asset Allocation

We all know that to maximise profits and bear minimal losses, one must prepare a diversified portfolio. Despite doing so, many investors become victims of the ever-changing market and face losses.

Hence, the question arises: How does one accurately allocate assets?

It involves dividing your investment portfolio among asset classes like stocks, bonds, cash, real estate, and others, aiming to balance risk and potential returns to align with your individual goals and risk tolerance.

The following is a standard asset allocation for an investor with a medium-risk profile.

The % in bonds, cash equivalents, or any other asset can be increased/decreased based on the market behaviour.

The Bottom Line

There are more than 8 crore investors in India in 2024, most of whom still believe in the many stock market myths. Instead of being like the other sheep in the herd, make sure to identify the right path for YOU.

Follow up on your original financial goal strategy and invest accordingly. The changing tide of the markets will not affect you. At least not majorly!

Happy & Safe Investing!