A bull market is a period of structurally rising prices, typically defined as a rise of 20% or more from the low point. Bull markets last longer on average than bear markets and are the periods in which the most wealth is built.
Characteristics of a bull market
A bull market is not only defined by rising prices. There are more characteristics:
- The market structure shows higher highs and higher lows
- Investor sentiment is positive and gradually improving
- The economy is growing, corporate earnings are rising
- Net capital flows into the stock market
- Volatility is relatively low
Phases of a bull market
Phase 1: Accumulation
The market is coming off a bottom. Sentiment is still negative and most investors don't dare to buy. It is precisely in this phase that experienced investors and institutional players step in. Prices rise slowly while the news still sounds negative.
Phase 2: Participation
More and more investors notice the rally and join in. The rise accelerates. Corporate earnings improve, economic news becomes more positive. This is the longest and most profitable phase.
Phase 3: Euphoria
Everyone is investing. Taxi drivers are giving stock tips. People borrow money to invest. Valuations are high, but nobody seems to worry. This is the phase where risk is highest, while the perception of risk is lowest.
The most dangerous thing about a bull market is that investors let their risk parameters slip. They take larger positions, use fewer stop-losses, and forget their plan. Until the music stops.
Notable bull markets
- 1982-2000: one of the longest bull markets in history, driven by technology and globalization
- 2009-2020: the longest bull market ever, following the financial crisis. The S&P 500 rose more than 400%
- 2020-2021 (crypto): Bitcoin rose from 5,000 to 69,000 dollars. Altcoins made even bigger moves
How do you invest in a bull market?
- Stick to your plan. It's tempting to become more aggressive when everything is rising. But discipline is most important precisely in good times.
- Take profits at your targets. If you've predetermined at what price you'll take profits, then do so. Greed is the enemy in a bull market.
- Rebalance. If stocks rise faster than bonds, your asset allocation shifts. Bring it back into balance.
- Be cautious of FOMO. Not everything that rises is a good investment. If you buy something only because it's going up, without your own analysis, that's not investing - it's gambling.
- Increase your risk awareness. When everyone around you is bullish, it's time to be extra critical. The best buying opportunities arise in pessimism, not in euphoria.
Bull market vs. bubble
The difference between a healthy bull market and a bubble is always clear in hindsight, but difficult to recognize in the moment. A few signals that point to a bubble:
- Valuations are far above historical averages
- Investors are buying with borrowed money
- New, unproven companies receive absurd valuations
- "This time it's different" becomes a commonly heard argument
Bull markets don't end due to a lack of optimism. They end when expectations get so far ahead of reality that a correction becomes inevitable.