The U.S. has been in a bull market for so long that most people may no longer even be concerned with the concept. With the exception of a few downward blips (and our current economic predicament), the market has been on a straight upward trajectory since March, 2009. 

Does that mean that bull markets are irrelevant? Should you change your behavior in a bull market – or for that matter, in a bear market?

Let’s delve into exactly what a bull market is and how frequently they occur. Armed with that information, you’ll then be in a better position to determine if a bull market should have any effect on your investing activities at all.

What is a bull market?

The loosest definition of a bull market is one in which the market generally rises over a prolonged period of time. More technically, a bull market is usually evidenced by a rise of at least 20%. 

Part of the difficulty in even using a percentage definition is the time it takes for the market to achieve that kind of gain. For example, if a market gains 20% in three months – only to lose it in the next three months – that may be pushing the definition of a bull market.

The more general connotation involves a much more lengthy process. The bull market may be expected to last anywhere from at least one year to a decade or more.

According to this table prepared by CNN there have been 13 confirmed bull markets since the Great Depression in 1932. They’ve ranged in length from 26 months to the most recent bull market, which reached 130 months in January of this year.

Notice also that while the official definition of a bull market is a gain of at least 20%, the gains listed in the table for each of the 13 bull markets range from a low of 48%, to a high of 417%. That would put the average bull market gain at something around 230%.

But if there’s one factor concerning bull markets that’s absolutely certain, it’s that no bull market can be predicted based on past bull markets. For example, one of the last bull markets lasted just 60 months. Based on that performance, no one could have predicted the most recent bull market would last more than twice as long.

There are different kinds of bull markets

When the discussion is about bull markets, it mostly centers around the stock market. For example, bull markets will be declared based on the performance of common indexes, like Dow Jones Industrial Average, the S&P 500, and the Russell 2000. But those are general bull markets that affect the broad stock markets.

It’s also possible for specific market sectors to experience bull markets. This can happen even when the general market is flat or declining.

For example, while the general stock markets experienced severe downturns in the mid-70s and early 80s, the energy sector rose steadily and spectacularly. This was due to factors unique to the energy sector. That included both OPEC driven increases in the price of oil, as well as a series of international disturbances and wars that caused the kinds of panic that drive investors into resource stocks.

Even apart from industries, there can be regional bull markets. For example, the US stock market can experience a powerful bull market while most other markets around the world are running in place.

And though it’s less common, there can also be bull markets in non-stocks, like real estate, commodities, and farmland. 

What are the specific factors that make a bull market?

Bull markets don’t just happen – there are usually factors outside the market that drive stock prices higher.

The end of a bear market

One common catalyst is the end of a bear market, which I’ll discuss in the next section. Like bull markets, bear markets usually overshoot the mark. Except that where bull markets will eventually rise to unsustainable levels, bear markets will fall until they reach oversold proportions.

Once a bear market reaches that depth, buyers begin to step in and scoop up the many bargains that such markets create. Though the market reversal may start slowly, due to the small number of investors involved, it eventually gathers steam. As it does, general stock prices begin to rise, and a bull market is in its early stages.

This is usually the single best time to begin investing in stocks since they can be purchased at such low levels. However, timing is always a problem with stocks, as it’s virtually impossible to get in – or out – at the exact right moment.

Economic forces

While bull markets may start at the tail end bear markets, there are usually economic, financial, political, and even geopolitical forces that provide substantial lift for stock prices.

If the bottom of a bear market coincides with developments like an improving economy, a rise in corporate profits, lower commodity prices (particularly energy), rising confidence, or a significant change in political leadership, the subsequent bull market can be especially strong and enduring.

The low prices may spark investor interest at the end of a bear market – mostly from speculators – then strong background forces are what will sustain the advance.

What is a bear market?

Similar to a bull market, a bear market is usually defined as one that declines by at least 20%. At times this can be triggered by excessive valuations in stocks. Steadily higher prices may eventually cause interest in stocks to wane. As buying subsides, seemingly insignificant waves of selling can cause the market to drop significantly. 

They are typically shorter than bull markets

However, one characteristic of a bear market is that they are shorter in duration than bull markets. A bear market can last for just a few months, while a bull market can last for many years.

However, the damage to stocks that’s done during bear markets shouldn’t be underestimated, despite their short length. The 2007 – 2009 bear market lasted just 17 months, but dropped the stock market by 57%.

The biggest bear market in history was the Crash of 1929. In a space of just two years and eight months, the market lost 89% of its value.

The deeper the loss in a bear market, the greater the gains in a bull market

But in one of the most interesting contradictions connected with the stock market, bear markets tend to set the course for the bull market that follows.

The deeper the loss during a bear market, the greater the gain in the bull market that follows. This is borne out by the recoveries that followed both the 2007 – 2009 bear market and the Crash of 1929.

Should I invest more during bull markets?

Human psychology plays a major role in both bull and bear markets. During bear markets, investors are overcome with fear over losing money and are prone to sell at the slightest hint of bad news.

But the exact opposite is true during bull markets. Investors become optimistic, even euphoric. They buy on good news and largely ignore bad news. And in yet another characteristic of a bull market, investors swoop in and buy stock on dips. A 5% decline in the S&P 500 can be followed by a 10% increase in a matter of days.

Investors tend to feel more confident buying during bull markets. After all, if everyone’s buying, how could they be wrong?

That kind of thinking is actually completely wrong, even though it’s more the rule than the exception.

Should you invest more during bull markets? Yes.

And no. 

Warren Buffett once said,

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

In other words, sell when everyone else is buying, and buy when everyone else is selling. 

Buffett’s track record speaks for itself. But he’s hardly alone in that contrarian view of bull and bear markets. 

An investment management service specializing in managing IRA accounts and employer-sponsored retirement plans called blooom, uses an investment strategy that emphasizes buying more stocks during market downturns.

Though this is a time-honored way to reap the biggest gains in stocks, it runs completely counter to the emotions that drive most individual investors.

What’s the best way to take advantage of a bull market? 

Maybe you shouldn’t necessarily invest more during bull markets, but you should definitely continue to invest. The same goes for bear markets.

Since history shows that every bear market is followed by an even stronger bull market, you should be investing even during bear markets. And as discussed above, there’s a strong argument for investing even more heavily during bear markets to take advantage of lower stock prices.

Take the emotion out of investing

The best way to invest in any type of market is to be methodical and remove emotion from your investment activities. As human beings, that’s difficult for the best of us, and impossible for the majority.

Dollar-cost averaging

Since you should be investing regularly at all times, your strategy should revolve around dollar-cost averaging. That’s a simple strategy of committing to regular, periodic investment contributions regardless of what the market is doing. It keeps you in the markets no matter what’s going on.

But dollar-cost averaging can even work to your advantage. Let’s say you commit to investing $1,000 every month. During bull markets, you’ll pay more for stocks, but you’ll buy fewer of them as a result. Conversely, during bear markets, you’ll pay less per share and buy more shares. The combination of the two will put you ahead over the long term.

If you’re unable to do this on a consistent basis, you should turn the investment job over to an investment manager who can do it for you. The manager will create your portfolio, invest your regular contributions, and rebalance your allocations as necessary. All you’ll need to do is fund your account on a regular basis.

Are there any investment services that can help me take advantage of a bull market?

You can do this using robo-advisors, which are low-cost, automated online investment platforms that will manage your portfolio for as little as 0.25% of your account value.

Examples of the top robo-advisors include Betterment and Wealthfront. For larger portfolios, those over $100,000, you can also use a service like Empower.

Empower

Empower charges a higher management fee than Betterment and Wealthfront, but they use more direct human involvement in the management of your investments. 

The arrangement with Empower is similar to robo-advisors. They’ll determine your investment goals, time horizon, and risk tolerance, and create a portfolio for you. 

(Personal Capital is now Empower)

Betterment

With Betterment, you’ll have the opportunity to invest ing stock and bond ETFs. These ETFs include companies from all over the world. That helps ensure that you won’t be subject to just one country’s economy.

If you’re looking for a variety of investment choices, Betterment can be a good option.

Wealthfront

Wealthfront focuses on investing just like Betterment and Empower, but they want to be your one-stop shop for many of your other financial needs as well. You can save and invest through Wealthfront, plus they’ll help you plan for retirement, too. With their Cash Account, you can automate any monthly savings beyond your normal budget to be directly invested directly.

You can invest in low-cost index funds through Wealthfront, making them a safe option. They also offer specific categories such as technology ETFs, healthcare ETFs, and socially responsible investments. Plus, Wealthfront keeps their investing fees low, at 0.25% per year.

Whether you use Betterment, Wealthfront, Empower, or a different investment manager, you’ll be removing your own personal emotions from your investing activities. You’ll simply be funding your investment account, and allowing specific investment decisions to be made by the management service. 

In most cases, those managers will be following a strategy very similar to dollar-cost averaging. They’ll be buying in bull markets and bear markets, and keeping you invested according to your goals and target allocations. That will remove the possibility you might be tempted to overbuy during bull markets or panic sell during bear markets.

Summary

Whether the country is in a bull market or a bear market is actually less important than most people think. What matters much more is having a long-term investment strategy. That means you’re prepared to continue increasing your investments no matter what’s going on in the markets. 

Markets will rise and fall, but the long-term trajectory is ultimately higher. Human and economic activity – in combination with inflation – has guaranteed it for more than 100 years.

It’s important to know what a bull market is, as well as a bear market. But it’s not necessary to plan your investment activity around either trend.

Read more:

• Investing For Beginners: How To Read A Stock Chart
• How To Invest Money: The Smart Way To Make Your Money Grow