The Little Book of Stock Market Cycles: How to Take Advantage of Time-Proven Market Patterns

Chapter One

Cutting through the Bull

Exploring the Meaning and History behind Bull and Bear Markets

Have you ever heard the saying “a rising tide lifts all boats”? When referring to economics and the financial markets, it means that everyone does better in prosperous times and most stocks perform well in bull markets. Conversely, all boats drop when the tide goes out. Most folks feel the pain of economic recession and bear markets drive stocks down en masse.

“Financial genius is a rising stock market” is another saying I keep in mind to help contain any bouts of hubris that arise from making accurate market calls. The phrase has been attributed to both the renowned economist John Kenneth Galbraith and the legendary investor Sir John Templeton. Put another way, “don’t confuse brains with a bull market.”

Being in a bull or a bear market has the single greatest influence on stock prices and the value of your investment portfolio. Therefore, it’s critical for investors to know how to identify the two. What happened to your portfolio in 2008? Unless you were a superstar stock-shorting hedge fund manager your portfolio was likely cut in half like those of most investors and even top fund managers. If you panicked early and fast in 2008 like I did you minimized losses and rode out the storm in bonds and cash.

In addition to determining whether you are in a bull market or a bear market, it is equally as important to know what type of bull or bear market it is. Commentators use a lot of ...