Bull Market Investing: A Beginner’s Guide
Markets are experiencing a renaissance. A massive run in Nvidia stock has been fueled by a craze over artificial intelligence technologies. Multiple all-time highs have been achieved by major stock indexes. Even bitcoin is on the verge of breaking records.
A financial advisor’s word to their customers in these trying times is not to let FOMO dictate their actions. Because trying to forecast when the market will top or bottom is usually a losing proposition, they advise customers to diversify their assets and invest a predetermined amount of money at regular periods (dollar-cost averaging).
However, according to them, stock market records tend to occur in clusters, and current surge doesn’t seem to have all the hallmarks of a bubble. That could mean there’s more space for the market to grow.
In the midst of all the excitement, we spoke to four regular investors to find out how they are changing their strategies.
It may be expensive to sit on cash, despite how tempting it seems. When his CD matured in January, 35-year-old Navy lieutenant Jordan Buchanan chose not to renew it, even though he might have gotten a 5% yield. Rather, he invested $10,000 in a variety of equities, including those of Nvidia, Super Micro Computer, Amazon.com, and Microsoft.
His holdings have risen 17% so far this year, much outperforming the tech-heavy Nasdaq Composite’s 8.4% gain.
Once the Federal Reserve starts cutting interest rates, growth stocks will likely soar even higher, according to Buchanan, while cash will start to lose its allure. Due to their valuation based on long-term growth expectations, technology and other growth stocks are especially vulnerable to changes in interest rates.
“It was something I did because I felt safe at the time, but then I realized that stocks were doing much better, so I dumped it all in,” Buchanan explains. I don’t think we’ve truly set the stage for what’s to come once interest rates are lowered, even though it has been a good year so far.
When compared to other asset classes, stocks have consistently outperformed. Ned Davis Research data spanning back 100 years shows that the S&P 500 has returned above 10% yearly, including dividends. While gold has gained 4.7%, corporate bonds and Treasurys have risen 5.5% and 5.1%, respectively.
Many others share Buchanan’s optimism. According to Charles Schwab’s quarterly study, which began in 2021, the level of bullishness among regular investors has never been higher. An increase from 32% in the prior quarter indicates that more than half of respondents are bullish on the US stock market.
The optimism is being fueled by bets that the economy has managed to avoid a recession and that the Federal Reserve will soon start decreasing rates. To kick off 2024, the S&P 500 has surged 7.7 percent and set 15 new closing records. Stocks of Nvidia have soared, increasing by 66% after tripling in value last year.
Neither, however, appears to be very costly. The stock price of Nvidia is 31 times its 12-month earnings forecast, as reported by FactSet. Three score equals 38 times. Compared to its most recent high of 24 in September 2020, the S&P 500’s multiple is over 21 points lower.
Resist the need to hoard. This second leg of the rise started in October, and 33-year-old reality TV cameraman and recording artist Zachary Esters of Nashville, Tennessee, says he invested around 20% of his portfolio in equities he thinks are undervalued.
Arbor Realty Trust and Barrick Gold were among the stocks he recently bought. While the stock of the gold miner has down 15% this year and carries a 2.7% yield, that of the real estate lender has declined 15% this year and offers a dividend yield of 13%.
According to Esters, investors should avoid being “totally risk-on” in all of their portfolios. This is because it reflects a greedy mindset, which is a negative choice.
Although Esters already has holdings in Alphabet, Adobe, and the SPDR S&P 500 ETF, he plans to increase his value stock purchases in the coming year. Generally speaking, a stock is considered a value if its current market price is below its book value, or net worth. Stocks in financial institutions, energy firms, and industrial conglomerates are common components.
While individual investors are primarily interested in Nvidia and Tesla, there are indications that some are expanding their investment horizons beyond the “Magnificent Seven” of major technology companies.
According to VandaTrack statistics, the proportion of retail inflows attributable to Magnificent Seven purchases has dropped from about 45% at the beginning of the year to 28% as of lately.
However, enjoy yourself. Day trader Richard Stofan of Channahon, Illinois, who is 33 years old, has just begun to experiment with more risky stock options.
The SPDR S&P 500 ETF, Nvidia, Amazon.com, Apple, and Alphabet are all part of his tech-stock portfolio that he has reallocated around one-third of this year. Arm Holdings, Palantir, Super Micro Computer, Fortinet, SPDR S&P Biotech, and Cathie Wood’s ARK Innovation exchange-traded funds were among the small-cap-focused investments he made.
He has increased his crypto exposure by purchasing shares in crypto miners Riot Platforms, CleanSpark, and Marathon Digital Holdings, bolstered by the near-record prices for bitcoin. Near $62,000, the price of bitcoin has not been this high in almost two years.
A lot of people are piling into popular stocks, not just him. Recent data from VandaTrack shows that the top 20 most traded assets by average investors have been focused in semiconductor and cryptocurrency companies, broad-market exchange-traded funds, and the Magnificent Seven equities.
In times of low interest rates and high demand for yield, speculative equities tend to do better than more conservative investments. The skyrocketing stock price can encounter a snag if the Federal Reserve either postpones or downplays the rate cuts that investors are hoping for. Stofan claims he isn’t worried and plans to take advantage of the dip to increase his share holdings.
Stofan compares them to lottery tickets. “I wouldn’t dream of increasing my speculative position if the market were in a bearish trend.”
Keep your money safe. Littleton, Colorado-based day trader Chase Speegle, 38, put money into AMC Entertainment Holdings during the meme-stock craze. He made almost $100,000 in June 2021, but he promptly lost it all.
He learnt the hard way this time to avoid losing too much and keep what he has. He strives to increase his holdings when he is in a profitable trade in order to take advantage of its full potential. It has been easier, of course, because we are in a bull market.
The portfolio of Speegle, whose investments have increased by 3% so far this year, has been experiencing a bull market since a few months ago, according to Speegle. There were a lot of wild swings in the market, and if you weren’t prepared, you could have lost everything. Keeping up with the positive tendencies has been much simpler.
Stocks, according to Speegle, will continue to reach new heights. Looking back, it seems like that could be feasible: There have been over 1,200 record highs for the S&P 500 since 1957, but according to statistics from Carson Investment Research, nearly all of those new highs occurred during three main clusters.
According to Ayako Yoshioka, a senior portfolio manager at Wealth Enhancement Group, “you can’t avoid one without the other.” While everyone likes the upside and hates the negative, it says it all. What matters most is the level of uncertainty you’re ready to face. To what extent would you like a gentle ride?
