Is a bull market a good time to invest? When stocks are rallying, and a bull market is in full swing, investors exuberantly buy stocks. The buying ends when investors decide they’ve missed the boat or worry they’ll end up bag-holding.
Is a bear market a good time to invest? When stocks plummet and bear market sentiment takes hold, investors panic, sell, or worry their investments will never recover. However, every investor's goal should be ‘buy low, sell high.’
Is there a right time to invest?
When it comes to the ‘right time to invest,’ the old adage it’s ‘time in the market, not timing the market’ sums it up nicely.
Therefore, now is a good time to invest if you have a long investing horizon.
If you buy a good quality stock now, chances are your investment will be worth more in a few years. The key is not to buy overvalued businesses.
The stock market rally of 2020 led many high-quality businesses to achieve outlandish market valuations. Unfortunately, this can catch investors out because even the best company can be overvalued and therefore face a share price correction when the bubble bursts.
However, the right time to invest is when you are comfortable that the stock you want to buy is fairly valued.
Buying Fairly Valued Stocks
For instance, if you have a strong conviction that nuclear power will be in demand in five years, a beaten-down nuclear reactor manufacturer, could prove a good investment.
If you think the metaverse will explode into everyone’s living rooms, the way the internet has enveloped our lives, you might opt for Meta Platforms Inc (NASDAQ: META) stock at a price-to-earnings ratio (P/E) of 12.
What about the world’s biggest tech company? Apple (NASDAQ: AAPL) is rolling in cash; it makes products everyone wants and plans to produce an electric vehicle.
The Apple share price fell 27.5% in the first half of 2022 to trade at a P/E of 21. This could fall further, but many investors will feel confident in Apple’s future. With a five-to-ten-year outlook, there’s no need to worry too much about intermittent fluctuations.
Furthermore, if a dividend is on offer, it helps sweeten the deal. It also cushions investors with a guaranteed monetary return while they patiently wait for the share price to rise.
Be Greedy When Others Are Fearful
Warren Buffett famously said investors should be “fearful when others are greedy, and greedy when others are fearful.” And the legendary investor continues to practice what he preaches.
In 2020, when the stock market rallied unprecedentedly, Berkshire Hathaway (NYSE: BRK.B) accumulated cash and barely took any positions. As the tide began to turn in 2022, Buffett’s organization began taking a series of large and unexpected positions, including Chevron Corp (NYSE: CVX), Occidental Petroleum Corp (NYSE: OXY), HP Inc (NYSE: HPQ), and Activision Blizzard, Inc. (NASDAQ: ATVI).
Buffett's firm sat tight when market sentiment was outrageously bullish and began taking positions as market sentiment turned bearish.
This is sage advice because buying when sentiment is low is sure to pay off when markets rally once more, providing the investment is not too risky.
Diversification
Diversifying your portfolio helps protect it from significant losses. Diversification can be achieved by significantly varying the selection of assets in your portfolio.
Chiefly, this should take the form of stocks from different market sectors, such as energy, health, technology, finance, and consumer staples. But it can be further diversified within these categories by choosing stocks from micro-cap, small-cap, mid-cap or large-cap brackets.
Then there’s the option to diversify across asset classes. In addition to equities, a portfolio can also include funds, gold, cryptocurrency, or alternative investments.
Buy and Hold
Value and growth investors agree it's better to buy assets to grow and hold long-term rather than attempt to time the dips and peaks.
Stanley Druckenmiller told John Collison, CEO of Stripe:
“We only buy businesses that we’re comfortable holding for many, many years. We're careful about valuation and we have a long duration.”
However, some investors don’t have the luxury of a long time horizon. This means a good time to invest is when there are no obvious signs of trouble ahead.
Don’t Let Volatility Put You Off
Volatility will always be present in the markets. Whether boom or bust, there are always investable pockets of the market where positive returns can be made.
The stock market makes no guarantees, but there are always gains to be accrued for those willing to do the research and take risks.
Indeed, volatility can provide the liquidity needed to allow convenient buying opportunities.
Regularly Review Your Holdings
Know what you own and regularly review your portfolio. If you own a stock that has made strong returns, it may be time to take profits. If you own a stock that’s heavily down, check your thesis hasn’t changed and reassure yourself it could bounce back once conditions improve.
Now is a good time to invest in stocks as long as you’re confident in what you’re buying. If you’re not committed to researching and reviewing your investments, your money may be better placed in funds.
In any case, stock market investing can be hugely rewarding. Enjoy the journey and the lucrative returns of strategic investing.