What is a Bull Market?

We’ve covered the fact how bears, and bear markets, suck.

Bull markets however do not suck. In fact, you can rack up some serious moolah during a bull market. Which sounds awesome, but most investors miss the boat on bull markets.

Here we’ll take a look at what bull markets are and how to take advantage of them to turbocharge your investing returns.

Quite simply, a bull market is a period of time when the stock market it trending up. (How long that period lasts will vary but typically goes from around 2 years to over 10 years.)

To get more specific, bull markets occur when market prices rise by at least 20% following a period of time when they dropped by 20% or more. Bull markets continue until the market turn south again and experiences another 20% drop.

While 20% is the key number here, bull markets usually produce much higher gains than that. In fact, since the Great Depression in 1932, there have been 13 bull markets. The lowest gain during one of those bull markets was 48%. The best was 417%.

Not too shabby!

What Causes Bull Markets?

Bull markets happen when a lot of investors start having warm fuzzies about the market. This leads to a lot more investors being buyers than sellers. Which pushes prices up.

Bull markets often start at the depths of a bear market when investors are most pessimistic. At that point, buyers start coming to take advantage of bargain basement prices. This happens slowly, at first, and then gains steam.

(By the way, the very beginning of a bull market is the best time to invest in stocks cuz most of them are priced super low. However, it’s ridiculously hard for even the pros to pinpoint this turning point from bear to bull.)

A Caution About Bull Market Investing

The U.S. markets had one of the biggest bull runs in history which ended in early 2020 when the COVID pandemic hit. Investors who started their investing careers during that time have been spoiled by the riches bull markets can bestow upon even mediocre investors.

There are a whole lotta people who think they’re the next Warren Buffett cuz they racked up great gains during this long bull market. Many are in for a nasty surprise when times ain’t all sunshine and rainbows.

It’s much harder to make money in stocks during a bear market. Adjust your expectations accordingly.

How to Protect Your Investments

While you can’t predict when a bull market is gonna turn to a bear market, there are ways to protect your investments. And how you do this, at least in part, depends on your investing strategy.

If you buy and sell individual stock or ETFs, you can use stop orders to lock in gains on your stocks that have increased in value. I like using trailing stop orders in particular. They allow me to protect my downside while being able to ride stock prices that continue to rise.

On the other hand, if you’re a buy and hold investor (especially if you’ve got a long investment horizon), your just gonna keep on keepin’ on. Just keep putting money in the market on a regular basis. Whether we’re in a bull market or bear market.

In fact, as it turns out, pretending to be dead actually turns out to be a highly effective way to boost your long term returns in the stock market.

Bottom Line on Bull Markets

Bull markets rock. The majority of investors will make most of their gains during these times. But it’s difficult to predict when a bear market will turn into a bull market. Unless you’re an experienced investor, your best bet is to not try and time things. Just stay invested and, over the long haul (if history is any guide), things will work out in your favor.