Bull Markets: The Ups and Downs of a Bull’s Life

Bull markets that never end are every investor’s dream. Unfortunately never-ending bull markets are just that…a dream. All good things must end. Bull markets are no exception.

However…history seems to repeat itself, allowing us to learn the recognizable life cycle of all bull markets. Something that we can watch for. It won’t guarantee you’ll never get burned, but it sure gives you a better chance of protecting yourself when you’re wondering what might happen next.

Bull Markets: Know Their Typical Trajectory

Bull markets off all shapes and sizes share some common characteristics, whether in stocks, bonds, commodities, or real estate. All bull markets tend to follow a similar four part path:

1) The Bull is born and starts to grow very slowly.
2) The Bull gets stronger and less wobbly on its feet. It starts to grow more quickly.
3) The Bull is given steroids by the farmer and grows unnaturally quickly.
4) The farmer decides he wants a big steak and the bull market dies…now it’s a bear.

Bull Markets Phase 1

The first stage is slow and gradual. It occurs when the market has reached a bottom and is slowly starting the upward move…a bull market is born. These markets are usually not even on the radar of most investors. They’ve moved on to the latest exciting and trendy bull markets…with little thought to what’s happening in markets that have just been through a bearish or sideways period. The stock market has, in the past, spent periods of time where it did basically nothing for years. Just the regular ups and downs, but not really bullish or bearish overall. Many investors give up altogether during these cycles. Phase one is when a bit of interest starts to show through. There’s a bit more volume, but just a bit. Savvy investors who feel the timing is right for a move get into bull markets at this stage.

Bull Markets Phase 2

The general public starts to become aware of bull markets in this stage. The markets in question start getting some media coverage…some of it conflicting. Bull markets at this level will start to move a bit faster, but a lot of investors are uncertain because of the conflicting advice from ‘experts’ and worry that the bull market direction won’t last. They remember past bear markets and are slow to take action. More professionals will be investing in the bull markets at this time.

Bull Markets Phase 3

Phase three of bull markets is the fastest and steepest. Everyone is getting into the game as the value keeps increasing. There is now little conflicting media coverage…almost everything’s positive. Bull markets in this stage are recommended by 99 percent of the ‘experts’ and financial advisors. The investment seems infallible. Everyone starts to buy, driving prices even higher. Problems then start to arise that drive these bull markets to phase four.

Bull Markets: Phase 4 = Bear Market Phase 1

As more and more investors commit to these bull markets, eventually there are not enough new investors entering the markets to keep driving the price. It starts to slow…then decline. A bear market has begun. It may be a slow decline or a sudden descent like you see pictured in the diagram at the top. Some investors are so sure of these bull markets that they invest in larger positions when the price drops, expecting a rebound.

Soon everyone is selling and the prices plummet. Those who ride these markets down hoping for a turn around end up wiping out much of their wealth. Many of them entered the bull markets close to the top and then end up selling with huge losses.

The bear markets that follow will go through their own life cycle until eventually, once they have been forgotten, they will become bull markets again and follow the same cycle. Take a look at major market cycles in the past and you will find this pattern repeating itself in a variety of different bull markets.

What We Can Learn From Bull Market Cycles

Unfortunately there is no magic formula for timing bull markets. However, savvy investors who know how typical bull markets behave have a bit of an advantage. If the market in question has gone through phases one and two and been in phase three for an extended period of time, it should at least make you think twice…once bull markets reach the end of phase three, they can turn around really quickly. Do you remember the dot com bubble? The recent real estate bubble? Smart investors made a lot of money in those markets. A lot more of them lost their shirts.

The primary thing you need to do when investing, whether you are looking at the cycles of bull markets or any other situation, is to trade with your head not your heart. Following the emotional roller coaster of the average investor will see you on the down side of phase four wondering what happened to your retirement savings. Protect yourself by learning as much as you can about your finances and investing so that doesn’t happen to you.

Roderick MacKenzie is a top tier wealth education consultant and financial investment editor at Business TM. He provides education regarding the financial, investment, and business strategies of the wealthy. He works with economists who accurately timed the phases of bull markets surrounding the ‘dot bomb’ fiasco, the 2008 market crash, and many others…and who were able to advise their clients accordingly.

Written by: Rod 03/22

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