You can make money in any stock market. Luckily, you only have to prepare for bullish and bearish markets. While each market has different catalysts that determine the bullishness or bearishness of the current trend, knowing how to navigate these markets can open the doors to higher returns.
I optimize my portfolio and investment decisions to increase the probability of making money. It’s not a guarantee, but having a game plan for each market type is better than being unprepared. Here’s how I navigate bull and bear markets.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Prioritize fundamentals
I like Warren Buffett’s mentality of buying and holding companies for multiple years rather than buying shares and then strategically exiting after an earnings report. Those moves sound flashy when they work, but they can also backfire. Even if you win those types of trades, you incur short-term capital gains, which are taxed less favorably than long-term capital gains.
Knowing what a company does, which catalysts will influence its stock price, and what it did in its recent earnings is vital before making any investment. You need this information to outperform the S&P 500 in both bearish and bullish markets.
The fundamentals differ for each company, but there are a few common metrics to monitor. Revenue and net income growth rates are two of the most important data points from an earnings report. They indicate if a company is gaining market share, and guidance indicates where the company is heading next.
I also like to look at valuations, giving preference to growth-oriented metrics like forward P/E ratios and PEG ratios. The problem with the P/E ratio is that it doesn’t factor in growth, which is why a bank stock may look like a better deal than a fast-growing tech stock on the surface.
Following multiple companies makes it easier to find undervalued picks in bull markets
During a bull market, most assets gain value. This is a good time for investors who have been accumulating shares of various companies and funds. However, you may have some extra cash on the sidelines, and not everyone likes the idea of it sitting idle while inflation eats away at its purchasing power.
The best way around this is to monitor multiple companies and funds. Even in a bull market, some growth stocks will lose value. A bad earnings report may be enough to send a high-flying growth stock down by more than 10%. If you like the company’s long-term fundamentals, that drop may present a good buying opportunity.
