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Monday, July 14, 2008

Buy Bear; Sell Bull

bull and bear markets

Buy low and sell high. Could any investment strategy be more simplistic? In times like these, many forget this basic principle. Here we look at how a Bear market is really a lamb in wolf’s clothing.

The terms "Bear" and "Bull" markets come from how these animals attack. Bears stand to attention on their hind legs and attack downward using their tremendous weight as leverage. A bull, conversely, attacks upward with its sharp horns and powerful neck. The definition of a Bull or Bear market is cause for debate. The definition I use regards perception and perception is what really drives any market.

In a bull market, investors buy because of a perception that the price will continue to rise. In a bear market, investors hold or sell but don’t buy as they perceive the market to continue to fall. What’s interesting is that these are self-fulfilling prophecies. If investors believe the market to fall into decline, then the market will decline. The inflection between a Bear and a Bull market comes when perceptions begin to change.

Bear markets are sticky ones because investors are looking to bet against the market. Fair enough, but the opportunity a Bear market brings is often glazed over in the media. Remember buy low; sell high? Investing in a Bear market to sell in a bull is a long-term strategy of buying low and selling high.

The opportunity exists in these market conditions to invest when things are at all-time lows. Things will pick up. They always do.

For more information regarding investing in marketing during a Bear market, see "Under Dog Marketing in a Down Economy" on JDM's new website.

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