How do you analyze the bull or bear market

What I learned from bear markets ...

I know that many find it hard to believe, as from a psychological point of view - emotionally - the good times end pretty quickly while the worries seem to stay forever. However, an analysis of the historical figures confirms my view. We have examined all bull and bear markets since 1988 (see also the PDF in the Info Center) and found that a bull market lasts an average of 22 months; a bear market six months. The average return on a bull market was 113% * while bear markets lost an average of 32% *.

Since the beginning of 1988, the longest bear market in the emerging markets has lasted 17 months - from April 2000 to October 2001. The MSCI Emerging Markets Index lost 42% in both USD and EUR. In contrast, the longest bull market lasted 47 months - from December 1990 to November 1994. The MSCI Emerging Markets Index gained 245% in US dollars (246% in EUR) during this period.

The best time to invest

Nobody can predict the start and end of a bull or bear market in the long run. So when someone asks me, "When should I invest in the stock market?" so my answer is, "The best time to invest is when you have the money." Given the historical evidence in favor of bull markets, there is a better chance of success if we are invested than if we were not.

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When we say "invest" we also mean "investigate" as examining corporate balance sheets, income statements and management teams gives us the opportunity to uncover undervalued stocks.

The tried and tested method of success for investing in the stock market over many years is value investing. Value investors have received significant long-term returns by (1) buying when stocks are cheap or undervalued; and (2) select stocks in companies that have solid balance sheets, good profitability and can generate consistent profits.

Take advantage of favorable buying opportunities

When is the easiest time to buy cheap stocks? When everyone else is selling, and probably selling out of desperation. Often times, the price of fundamentally healthy stocks suffers from poor market sentiment or low investor confidence, rather than from a deterioration in company fundamentals. In addition, the price of a stock is sometimes pushed down to a level that already takes into account the risks associated with the company. Investors should always act for the long term and be prepared to take advantage of such opportunities.

The reverse is also true - the best time to sell a stock is when everyone around you is quick to get into the market. When a market is at its peak, prices have undoubtedly also peaked. Right now, markets around the world are generally down and we are likely approaching the levels of maximum pessimism. Is it time to invest in emerging market stocks?

* Calculated in US dollars 

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