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Timing the bulls and bears – Investment Club

Good Day People,

A warm welcome to you all, for a party hoisted by our most famous bulls & bears of stock markets :). I am sure you would love each one of their characters & how they act & react.

Yes, this is one cycle which markets all around the world will go through at irrespective of how bad or how good the after math effects of this could be. If a condition in the market is filled with undue negativity & everybody around strongly expects the markets to fall lower, this sentiment is called as a “Bearish Sentiment”. If a condition in the market is cheered for positive short comings, that is everybody around strongly feels market is going to touch more highs ahead of days, this sentiment is called as a “Bullish Sentiment” in the market.

Like most of you guys know, timing the stock markets with your decision to buy or sell, holds the key to your success in this markets. And trust me, this is not such a daunting task & it doesn’t take only Warren Buffet or Benjamin Graham to master this… instead everybody can if they could pay little attention to solve this bear/bull market puzzle.

Logical Understanding Of Bear Markets:
True bear markets devastate stock prices across all the sectors & offers everybody the best opportunity for selective Contrarian Investing. Contrarian investing habit is nothing but, thinking in contrary with the markets by understanding what is happening around you & sticking on to one’s basic principles of investing. Mind you, Bear markets are the rarest of buying opportunities but the easiest to spot because the media has announced to the world “that we are in bear markets”. So once it is universally proclaimed, the financial world becomes overly pessimistic & access to capital is severely constrained. Which also means banks no longer will give easy loans. This is exactly how the current situation across the globe is & we are bound to face it. Bear markets usually appear after a “Strong Bull Markets” i.e the phase in which everybody knows it’s just like a bubble & and could burs any time… but still everybody joins the party & continues to be strongly bullish about the markets. A true example of a bull market in India was between 2005 – January 2008.

Key Point:
During a bear market it is possible to find some spectacular buys. Companies with durable or long term competitive advantages are selling for a fraction of their long term worth. It’s easy pickings, so pick the very best of stocks.

Transformation Of a Bear Market Into a Bull Market:
[Analyzing this phase with little keenness, helps you predict the future of stock markets with out anybody’s help] Always know that bull market comes into being after an economic recession & after the resulting bear market have devastated the stock prices. During a bear market phase you can find almost, all top companies with P/E ratio’s above 30 falling to as low as single digits just like the way the market is looking at the moment. Many companies see their stock prices suffer from nothing more than economic downturn in the economy, which is reversible move. This is when you need to spot, those companies whose durable advantage is solid & still has the capacity to generate an abundance wealth for you. So it is during these times when the central banks of respective countries drops interest rates several times so that they can infuse money into the economy, by increased borrowings. And later the economy recovers.

Key Point:
This transformation stage is the best stage & requires a relatively sharp thinking by investors to analyze them. More often this is just like buying one dollar for fifty cents, where every thing you see around is participating in a discount maniac’s events.  And the corporate companies looks like, a cancer patient who is eating up his own earnings.

Understanding The Raising of Bull Markets:
The lowering of interest rates by the central banks stimulates the economy & thus increases more scope for borrowings. So naturally this preempts companies to borrow more money & get prepared for a revival stage. Later this makes, corporate earnings more valuable which causes a corresponding increase in stock prices. This is what causes the start of a “Bull Market”. Investors see stock prices rise & jump in on the action, which causes the market to heat up a little more & thus again attract more investors. This is the time, when all those Mutual fund managers who went into hiding will get back to their office & draws up new plans for advertising their newly introduced funds. So seeing this spectacular things happen around, your neighbors who always kept money in Fixed deposits of banks for low interest rates… takes them out to invest in stock markets to make sure they don’t miss the race to richness. Again, it is this phase when everybody wants to score few home runs & sixers & starts over do-ing things that will pull them back to bear markets.

Key Point:
Some times you get to feel this stage is more like, every dog resurrects to get on to be a bull dog. And they all bark together, eat together & ultimately fall together. A phenomenon called “Even I want to do it, coz my friend does” starts growing at an alarmingly fast pace & thus invites the unwanted bears home for a party. Yes, off course it will be a “Bears Only” party where access to human sentiments is completely ignored.

Hey do let us know, about the above compiled article. Hope you guys, would like the usage of simplest of language by us, while we expressed few commonly notable sentiments in a simple way. What ever, is your feeling write to us… we wish to know things first hand from you. Wish all good days ahead!! Keep Smiling :).