Investment in Various Stages of the Market

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When one understands the difference between Volatility, Correction and Bear Market, he/she could grab the opportunity, otherwise what you think Mauka (मौका) will turn into Dhoka (धोखा)” – Shailesh Sampat

To elaborate why I am writing this in the current market situation, first of all we should understand what are the Various Stages of the market

We can divide the Market in to 5 stages

  1. Bull Run
  2. Volatility
  3. Correction
  4. Bear Market
  5. Recovery

In the market cycle nothing is forever if today is Bull Run than sooner or later Volatility, correction and Bear Market will also be there.

Your Investment strategy should also be changed according to the phase of the market just like we cannot have the same medicine for all the pains.

First of all we will know various stages and how it impacts the investor’s mind-set during different market stages and what is investor behaviour in that situation.

A Bull Market or a Bull Run refers to a Stock Market characterized by a sustained rise in share prices. This occurs when investors believe the positive trend will continue for the long-term. Every Investor will always love Bull run but that is the most dangerous stage of the market, if you do not respect properly it will damage your investments and may ruin your financial life also. Everybody wants to buy and expect that the market will never go down. In this phase all the participants are GREEDY to grab the potential returns so the difference between price and value is forgotten and keep buying at anything. There are so many new investors and bounce back investors are starting their investment in this stage.

During all the time, whether it is Bull Run or a Bear Market whatever it may be, one thing will remain permanently that is Volatility. That is why we cannot categorize this as a phase it is just a day-to-day Market Movement. Sometimes some Impatient Investors panic against Volatility and overreact by selling or buying like they have lost a big opportunity.

During the Bull run all the prices are overvalued in the market. In the CORRECTION phase the market prices are getting corrected against its value and bring prices in a fair value zone.Sometime some Impatient Investors are getting frustrated during this phase start getting panic and starts selling.

After correction phase the actual BEAR Market starts in this phase Investors are panic and afraid to buy stocks at throwaway price also, in this FEAR scenario sellers are more than buyer so the stocks would be selling at cheaper price which may be the lower than its value.

Now the big question arises about how we can decide we are in which phase. We have already discussed what Bull Run is and how we can decide, it is a bull run or not. But it is a bit difficult to differentiate the other three stages.

As per my experience and knowledge I am explaining that When we call it Volatility, When we call it Correction and When we call we are in the Bare Market.

Volatility itself defines that it will swing both ways and as said earlier that it will remain in every stage of the market. it may vary from 0-10% range. If you are a long-term investor then you should not react or worry about volatility.

We can call Correction if the market is dropped from 10-25% and remains at this level at least for 2 to 3 weeks. You may start buying in this phase if you are confident about valuations. What is the fair value and how we will calculate we will discuss some other time on this platform.

When the market is corrected over and above 25% and remains at that level for at least 1 to 2 months we will call that we have entered in a Bear Market. Most Favourable Condition for Investment you can be an aggressive buyer in this phase

Most of the investors are not following the cycle of the market and facing the losses.

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