Bull vs Bear on 27th July 2007

Bull and Bear

Bulls and bears are common creatures in the stock market. While bull are most welcomed by many, bears are very much hated. But is the view on them justified? I am interested to find out.

STI 1988 to present (27th July 2007)


From 1988 to present, there are distinctive periods of bull and bears. Ignoring the smaller bears, the larger one lasted from 1996 to 1999; 2000 to 2003. However, taking a step back, from 1988 to present, a gigantic bull actually make the bear (no matter how big) miniscue.

In fact, boom and bust are common in the stock market. Though many are triggered by events, e.g. economic downturn, terrorist attacks, oil crisis etc. their unpredictability in occurrence actually give these ups and down a random pattern.

However, in an overall view, the general direction (as any healthy economy) over decades should be up. If a committed investor put in the same dollar amount into the stock market regularly over the years, there is no way he will make a loss. In fact, riding the gigantic bull amongst the random herd of mini bulls and bears will bring him the profits. (STI rose by more than 14% per annum on average from 1998 to present)

DOW 1930 to present (27th July 2007)


Another example can be taken from a more mature economy. In its relative infancy, stock market was volatile, but the general direction is up. In the mature state, the general direction is still up despite short term volatility.

Investors vs Speculators

An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative. Quoting from the Intelligent Investor, Benjamin Graham). Another common manifestation is the investor takes a long term position (riding the gigantic bull) while the speculator toys with the random herd of mini bulls and bears, common in the short term volatility. Money comes fast ... it disappears quickly too.

Conclusion

Thus my position is clear. So long as I am diligent and careful with my valuation, buying as many sufficiently undervalued companies over the years will have given me ample margin of safety and diversification to protect my portfolio. I choose to ride the gigantic bull and ignore the random herd.