Investor Psychology in Bull and Bear Markets - McCarthy Group Investor Psychology in Bull and Bear Markets - McCarthy Group

A few weeks ago our founder Stephen McCarthy visited the USA to take part in an international marketing conference. While he was there, Stephen recognised some similarities between the conditions in Australia and those of the States, past and present. This is the second of four articles that he wrote, this time about Investor Psychology in Bull and Bear Markets.

I had the good pleasure of getting to stand outside the NY Stock exchange, staring face to face with the famous Charging Bull. The bull really is a fantastic representation of the energy, strength and unpredictability of the stock exchange itself.

The NY Stock Exchange Bull. Photo Courtesy of Diaryofanelearner

The NY Stock Exchange Bull. Photo Courtesy of Diaryofanelearner

For those that aren’t aware the concept and design of the bull comes from the famous “Bull and Bear Markets.” A bull market represents optimism and the belief that stocks will go up. A bear market is the opposite, pessimism and the threat of recession being the order of the day.

So when we are thinking about bull and bear markets we are effectively thinking about what people perceive of the state of the economy. If people think that the market is in a strong position then more people will invest, and the Bull charges on. If people think that the market is going downhill then they will be more conservative with their spending and the economy will slip into recession, the bear protects itself.

A graphical representation of bull and bear markets. Photo from Business Insider

A graphical representation of bull and bear markets. Photo from Business Insider

But let’s bring this idea to Australia and investment patterns here. At McCarthy Group when we talk about the bull and bear markets we are talking about the property cycle. During Bull Periods people tend to invest because they have faith in the market, this drives up the prices of all goods and services as there is more demand. But of course economies don’t just grow all of the time, think about the GFC back in 2007. When the bull market ends and the bear takes over, property tends to follow the same cycle as shares. Prices go down as demand decreases.

Now think about when you should be investing. Would you feel more comfortable putting money into property during a bull or bear market? Well anybody who invests in shares will tell you, ‘Buy at the bottom, sell at the top,’ and the same applies for property. The bear market characteristically involves a reduction in price, so buy at the bottom during a bear market and sell at the top of bull market.

Businessman sleeping with bear with down trend graph, VECTOR, EPS10

The moral? Just wait for the bear to wake up, then ride it all the way to the top!

At this point we aren’t even considering inflation, which naturally raises the price of all goods and services within a geographic region over time. Put simply, if you hold a property for a number of years and sell when the market is at its highest, you capitalise on the bull market and also on inflation!

In any case, if you are thinking about investing, it ultimately doesn’t matter when you invest. At some point in the future a property will be worth more than the price it is bought at. Australia, being very stable, has consistent levels of inflation which mean that even if you buy at the peak of a bear market, you ultimately gain capital from inflation in the next peak.

If you want to learn how to predict the bear and the bull, be sure to follow the link below!

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Kind Regards,

Stephen McCarthy
CEO McCarthy Group