Not a Bull Market or Bear Market: Are we in a Buffalo Market?

Bull market.

Bear market.

These are two terms that every stock market investor is familiar with.

In general, bull markets create wealth and bear markets destroy wealth.

Bull markets are driven by greed and bear markets are driven by fear.

But there's a new term doing the rounds: Buffalo market.

What is this new kind of 'market' all about?

In this editorial, we will find out...

What is a Buffalo Market?

In simple words, a buffalo market is one which 'roams around'. It neither goes up nor down decisively.

The term seems to have been coined on Wall Street by the folks at Bank of America.

A buffalo market doesn't mean a flat market. Stocks as well as the benchmark indices will continue to move up and down but not by a significant margin.

In other words, stocks prices will mostly just about roam, i.e., wander around a bit, without making a clear move in either direction.

In fact, after a big move, either up or down, a buffalo market will get 'tired' and then the move will likely fizzle out.

Can a Buffalo Market Turn into a Bull Market?

Yes, it can. The key is in the fundamentals.

In the Indian stock market, as long as companies keep delivering strong earnings without putting too much pressure on their balance sheets, the bull market will eventually resume.

A buffalo market, in this case will be temporary. Short term trends may move the market up or down for a while, but eventually, the bull market will establish its dominance.

Of course, the reverse is also true.

If the underlying fundamentals of the market were to deteriorate, then the buffalo market will eventually turn into a bear market. Only a trigger event would be needed to tip the market over.

Investing Strategy During a Buffalo Market

Just because the bulls are not in control of the stock market, doesn't mean you should change your investing strategy.

Long-term investing is the way to go. If you are already one, then congratulations. You just need to keep at it.

If you're a trader and are new to the idea of long-term investing then we suggest getting started by reading this article - 10 Rules for Successful Long Term Investing.

This is also a handy article - Your Long Term Investing Checklist.

If you already have a grasp of the basics, then you should focus on the top sectors that will do well in the long term.

After all, every stock won't go up 60% just like the Sensex when it gets to 100,000. So will languish while others will be multibaggers.

So, focus on the sectors that could produce the multibaggers. This article will point you in the right direction - 5 Sectors to Bet on for the Long Term.

On the other hand, if we remain in a buffalo market for some time, don't be disappointed. Use the opportunity to find and buy great stocks for the long term.

We believe the value investing strategy should do well in case the bull market does not resume quickly.

Conclusion

Finally, if you are confused about the direction of the market, remember to stick to the basics.

When investing in the stock market, many investors make mistakes even when implementing simple strategies.

This is due to a lack of knowledge of the investing basics. But this is easily preventable. If you can just avoid making mistakes, you will be ahead of most stock market investors.

In fact, it wouldn't be too much of a stretch to say that avoiding just 5 investing myths will ensure the health of your portfolio.

To get rich in the stock market, you need to first ensure you don't lose money. This is the first investing rule of Warren Buffett.

His second rule is to not forget the first rule. Unfortunately, many investors do forget.

No matter what kind of market you find yourself in, stick to the basics, avoid loss-making companies, or companies with too much debt, or companies trading at sky high valuations.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...