2 years ago, I went to Lake Minnetonka, Minnesota for the 4th of July to visit my boyfriend’s family. After a weekend of beers and boating, we headed to the airport for an early Sunday flight back to San Francisco. I was exhausted, still slightly hungover and not thrilled about the 4 hour trek home. However, before boarding the plane, I saw an adorable Pomeranian dog in line at the gate and said to Alex, “Omg I love him! I hope he sits next to us.”
Moments later, we boarded and to our excitement the pupper sat right next to us. It felt like such a silver lining after what started as a horrible travel day.
After takeoff, the owner asked if he could take the dog out of it’s carrier. He said it was extremely well behaved and friendly, so I approved. I started playing with the dog, it jumped in my lap, and I even took a selfie that said, “best seat mate.” Then, things started to turn. The dog made a weird noise and started to shake, and finally leaped for it’s owner off my lap. Everything happened so fast, I hardly had time to react, but as the dog leaped it simultaneously got liquid sh*t all over me.
All of the sudden, the plane erupted in disgust, people started taking photos and videos, and the flight attendant ran over to scream, “dogs are not allowed outside their crate!” She then threw a hazmat bag at me and yelled for me to go change out of my soiled clothes in the back of the plane. I was now the dog with the tail between it’s legs.
When I finally returned to my seat, I looked at the dog and realized, even when situations seem like a dream, you need to protect your ass. And that leads me to today’s topic - investing in a Bull Market. Because stocks don’t always go up, and you need to be prepared for turbulence.
What is a Bull Market?
A “bull market” is a sustained period of time in the stock market in which prices rise or are expected to rise. This period can last months or even years.
Note: A bull market is a sustained period of rising prices while a bear market is a sustained period of falling prices. The phrases come from the ways the animals attack. A bull will raise its horns (hence rising prices) and a bear will swipe down (hence falling prices).
What do the Bull Market and Pomeranian have in common?
They Can Seem Perfect - When I found out a dog was sitting next to me, I could not have been more excited. I am a huge animal lover and needed emotional support after an incredibly chaotic holiday weekend. That being said, the perfect pup was a menace in disguise. Bull Markets can be similar. This past year has been an incredible bull market and stock prices continue to rise. In fact, the S&P 500 just rose for a fifth straight month and reached its latest all-time high to close out June. The S&P 500 is also up an average of 14.4% YTD (year to date) which is greater than it’s average of 10% (this is an average return over the past 100 years).
Although this can seem like an ideal scenario, markets do not always rise - they are cyclical. Recognizing that markets rise and fall is one of the most important things about investing. And while investing when things are seemingly great can feel awesome, extended periods of rising prices can be a sign that the market may be reaching a top.
Note: No one can tell the future and timing the market is next to impossible. This is why, I live and die by time in the market is greater than timing the market.
Sh*t Can Hit the Fan - I probably don’t need to elaborate on this one and certainly don’t want to continue living this nightmare. Although, every time I tell the story, a few people start crying from laughing (I suppose that is a silver lining in itself). Bull Markets can also hit the fan. If you check out the chart below, you’ll see how the DOW index dips around 5% three times a year, 10% once a year, 15% every 2 years and 20% every 3.5 years. That means, corrections are expected and healthy. In other words, the stock market goes on sale at different rates at different frequencies. You won’t know when the sale hits but you also shouldn’t be surprised when it happens.
They Can Be Terrifying - I don’t think I’ve ever been more embarrassed in my life than when that dog pooped on me. If the smell and the situation wasn’t horrible enough, the 12 year old filming and narrating live on snapchat certainly pushed me over the edge. Nevertheless, I survived. I changed my clothes, laughed along with the young parents sitting in front of me that reminded me, “they frequently get pooped on by their newborn on planes,” and I received a travel stipend from the airline. Bull markets and their subsequent dips them are natural. Although they can seem scary and you may feel like you are losing money - you don’t actually lose anything until you sell. That’s why I always plan, set a time horizon and recognize that although dips occur, I believe in the long run the market will rise.
How Should I Invest in a Bull Market?
When investing in any scenario (bull or bear market), you need to evaluate your goals, risk threshold and time horizon. You also need to decide if you want to be an active or a passive investor. These questions will help you decide how to take your next steps and I’ll break this down further below.
Evaluate your goals - Are you investing for wealth creation, investing for retirement, investing to buy a home or something else? Once you figure out your goals, you need to challenge yourself to ask, when do I want to accomplish them? For example, if you want to buy a house, do you want to buy it in 1 year, 5 years, or 20 years. If your answer is 1 year, you may want to consider not taking significant risk in your portfolio because your time horizon is shorter (aka you will need liquidity sooner).
Active or Passive - Now, you need to decide if you want to be an active or passive investor. If you’ve been following me for a while, you probably already know my preference of being a passive investor. I love passive investing because it removes bias and involves investing consistently in a diverse range of stocks over a period of time. Regardless of if you are in a bull market or bear market, you stay the course.
If you are active, bull markets can be particularly tricky because you are constantly trying to find yield in a high priced market - aka, you are looking for items on sale when a new season just dropped. That doesn’t mean you won’t find them though.
Strategy One: Consider investing in the financial and consumer discretionary sectors. They both tend to outperform the broader market during bull periods because banks benefit from higher interest rates, and consumer discretionary stocks perform better when disposable income is higher.
Strategy Two: Consider investing in international exposure (you can check out my article on international investing here for further detail). International markets may not be as far along as the US market which means there might be opportunity for them to go higher.
Keep Dry Powder - As an investor, you always want to have money on the side lines to put into the market which is also called “dry powder.” When you are in a bull market, you don’t necessarily want to pump additional funds into the overall market beyond your set strategy or unless you have strong conviction on a trade. That being said, bull markets can be followed by bear markets which are periods when prices are decreasing (aka, stocks go on sale). And when stocks are on sale, you may want to consider buying more than usual with your “dry powder.” I tend to keep around $5k of “dry powder” although this is a completely personal preference.
Things to Be Mindful Of
People Talk a Lot - In a bull market, there can be a lot of bullsh*t. Everyone can seem like an expert because generally everyone is winning. Your mom, grandpa, neighbor, best friend’s boyfriend, and even your boss might be talking about how much they are making in the stock market. They also might be giving you advice on what to invest in. Generally, I try to steer away from “experts” and figure out what is right for me. I set a plan and stick to it. While outside investors might have lots of thoughts and ideas on the next big stock, don’t let it get you off course. And if you are actively investing, consider the same tactics and not losing your fundamentals.
Don’t Fear Getting Started - While I’ve talked a lot about dips, I do not mean to frighten you from getting started. Like I said earlier, no one can actually time the market. I spoke to someone a few weeks ago that said “I have not invested since 2015 because I thought we were in a bubble then and I think we are in one now.” Unfortunately for this person, if they put $100 in the S&P in 2015, they would have $210.17 today. Aka, a 110.17% return. Just imagine if you put in $1,000 or $100,000.
Time in the Market is Best - The market is cyclical and unpredictable. Although we’ve come a long way and have advanced technologies that help people try to predict market trends, nothing is guaranteed. That is why historically, time in the market is always better than trying to time the market. So regardless of if we are in a bull or bear state, the best day to start investing is today (whenever that may be).
Thank you for reading!! If there is a topic you want to discuss, please DM me on Instagram at @notyourbfsinvestmentadvice or email me at firstname.lastname@example.org. I also am building a company called Aura (formerly known as Tardi) - a financial wellness and investment platform. If you’re interested in joining the beta, sign up here.
See you next week lover!
Disclaimer: All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.