Recently the strong likelihood of the interest rate cut is giving more legs to the bull market. The funds are shifting from the magnificent 7 to the broader industrial stocks, REITS, and property stocks which is a good thing. This is part of the bull market cycle maturing.
I am not a fan of the bull market. I view bear markets as beneficial. It depends on your circumstances. If I am not retiring immediately and I am a net accumulator of businesses, I like the bear market. That is when the share prices are declining, which presents opportunities to buy at discounted valuations compared to bull market highs. This allows me to build positions in companies that I believe will have long-term potential. I will want to keep buying more businesses as long as I don’t need the funds and there are incoming funds from employment or passive income.
When you are buying a business in a downtrend, there is more margin of safety if the fundamentals of the business remain the same. There is less risk of overpaying for assets. This will be the right entry point for investors. If we believe that most of the things will revert to their equilibrium, a depressed stock price will eventually return to the norm when the tide is here. The disclaimer is the business needs to be doing well.
Some of the investors will rebalance their portfolio by selling overvalued assets in a bear market to buy the undervalued businesses or sectors. I do not like to sell business unless there is a better opportunity where your funds can be put to better use. For example, I sold a cyclical company because I believed its business profit peak had arrived and there was no further stimulant. I recycled the funds to buy 3 Chinese banks to raise my exposure to “then-risky” assets due to the property meltdown. The return of the Chinese banks hit 40% at a point before they issued dividends. Then the average return now is around 25%.
In tax haven countries, a tax-loss harvesting strategy cannot be used. In other countries, investors use the bear market to sell positions to offset capital gains, reducing their tax burden.
In conclusion, psychologically it feels good to see your portfolio grow in a bull market when everything is green. However, that is an illusion until you realize your gain. What will you do with the funds after that? I would like to accumulate more businesses during my entire lifetime and let the brilliant minds of the businesses that I own allocate money for me. This is the best way for wealth to compound over the long run.
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