Bull and Bear Markets

[robertbanking]

Hello you very wonderful and amazing individuals that make up these forums. I sincerely hope things are going well for you.

I have been trying to figure this out for some time now but i really cant seem to work this out sadly. I know since the start of 2022 we entered a bear market and stocks dropped quite significantly. Then at the start of this year, we seemed to be in a bull market, however it was the majority of Tech stocks and the optimism over Artificial Intelligence that caused this. Then we seem to be entering another correction period again. I please wondered when we might next enter a bull market please and is there any indicators that would help confirm this please? We seem to have been in rough waters with the stock markets for the last 2 years. If anyone kindly had any thoughts on this i would be forever grateful and thankful it would be highly appreciated.

Sending you lots of good wishes and i truly wish you massive success with your investing. Thanks to all the amazing and wonderful people of these forums who share so much wonderful knowledge with others. Very best wishes to you all.

[Urbandreamer]

I know of no reliable indicators that identify the start of a bull market or what sectors investors will become interested in.
There are indicators that fairly reliably indicate the start of a recession. As in they are right something like 60% of the time.

You might however be interested in the Elliot wave.
https://www.investopedia.com/terms/e/el ... theory.asp

Personally I'm not convinced and don't tend to use TA tools to influence my stock market investments.

[Dicky99]

Hello you very wonderful and amazing individuals that make up these forums. I sincerely hope things are going well for you.

I have been trying to figure this out for some time now but i really cant seem to work this out sadly. I know since the start of 2022 we entered a bear market and stocks dropped quite significantly. Then at the start of this year, we seemed to be in a bull market, however it was the majority of Tech stocks and the optimism over Artificial Intelligence that caused this. Then we seem to be entering another correction period again. I please wondered when we might next enter a bull market please and is there any indicators that would help confirm this please? We seem to have been in rough waters with the stock markets for the last 2 years. If anyone kindly had any thoughts on this i would be forever grateful and thankful it would be highly appreciated.

Sending you lots of good wishes and i truly wish you massive success with your investing. Thanks to all the amazing and wonderful people of these forums who share so much wonderful knowledge with others. Very best wishes to you all.

I think we'd all like to know the answer to this question but it comes down to the old adages of time in the market rather than timing the market, and employing pound cost averaging so that at least some of your purchases will be at or close to the trough bottom.

[vand]

robertbanking, I see you are still asking the wrong question.

As much as you may believe that the market has some obligation to make you rich - it doesn't. We have capital markets so that companies and other entities can access public money to obtain financing that they couldn't get privately. Everyone who invests their money in common stock would do very well to remind themselves of this truism from time to time. It's what keeps our system moving forward and improving over time.

So you need to ask yourself when are the better times to lend your capital to firms? Is it when money is plentiful and everyone else is offering the same as you and bidding up prices, or when capital is scarce and funding is difficult to come by and expensive? The philosophical answer to when does a market bottom is when funding is the most scarce- that is when companies are in most difficulty and everyone is pessimistic about the future.

And as Urbandreamer very correctly alluded to, if you have no way to know reliably when bear markets are over (and nobody does) then you would do take up the next best option, which is to remain in the market for a long period of time so that you benefit from real productivity, growth and cashflow returned, and not just shorter term price movements.

[tjh290633]

An old gentleman once told me his father's advice to him.

"Never buy on a rising market nor sell on a falling market."

It still seems good advice to me.

TJH

[dealtn]

So you need to ask yourself when are the better times to lend your capital to firms?

No.

As an investor you are rarely lending your capital to firms. You will be looking at when do other participants in the secondary market want to sell their investments of capital to you, and when is it opportune to sell yours back to them.

If you want to restrict yourself to capital issuance that is a much smaller, niche primary market, and unlikely to coincide with your expressed intention of "getting rich".

[vand]

So you need to ask yourself when are the better times to lend your capital to firms?

No.

As an investor you are rarely lending your capital to firms. You will be looking at when do other participants in the secondary market want to sell their investments of capital to you, and when is it opportune to sell yours back to them.

If you want to restrict yourself to capital issuance that is a much smaller, niche primary market, and unlikely to coincide with your expressed intention of "getting rich".

Well, sure. I mean technically you are engaging in change of ownership, not lending, but unless you intend to never sell at all (in which case why buy) then you can consider it as lending and calling in your capital at the prevailing market price.

[GoSeigen]

So you need to ask yourself when are the better times to lend your capital to firms?

No.

As an investor you are rarely lending your capital to firms. You will be looking at when do other participants in the secondary market want to sell their investments of capital to you, and when is it opportune to sell yours back to them.

If you want to restrict yourself to capital issuance that is a much smaller, niche primary market, and unlikely to coincide with your expressed intention of "getting rich".

@vand's post was practically flawless, including the section quoted above. As an investor you absolutely are lending your capital to firms. A share is issued to (say) an investment bank in a placement. When you buy their shares from the investment bank they cease to become the investor and you take on that role. I cannot see any alternative way to view investment that would accord with dealtn's quibble.

Looked at from the investor's point of view, he was previously lending to the government while he held gilts. He sold those gilts in the secondary market to another investor interested in lending to the government and bought shares instead. His capital is now no longer funding the government but the company whose shares he bought. When that company returns capital to its shareholders it is that investor who will receive a cash payment from the company and relinquish his shares, not the entity to whom the shares were initially issued.

Not only was @vand's statement about lending capital 100% logical, the idea of understanding the best time to do so is also sound. Absolutely correct to do so when the company NEEDS capital and is trying to raise it (or when it would be expensive for them to do so) than when people are falling over each other to fund the business.


GS

[dealtn]

No.

As an investor you are rarely lending your capital to firms. You will be looking at when do other participants in the secondary market want to sell their investments of capital to you, and when is it opportune to sell yours back to them.

If you want to restrict yourself to capital issuance that is a much smaller, niche primary market, and unlikely to coincide with your expressed intention of "getting rich".

@vand's post was practically flawless, including the section quoted above. As an investor you absolutely are lending your capital to firms. A share is issued to (say) an investment bank in a placement. When you buy their shares from the investment bank they cease to become the investor and you take on that role. I cannot see any alternative way to view investment that would accord with dealtn's quibble.

Looked at from the investor's point of view, he was previously lending to the government while he held gilts. He sold those gilts in the secondary market to another investor interested in lending to the government and bought shares instead. His capital is now no longer funding the government but the company whose shares he bought. When that company returns capital to its shareholders it is that investor who will receive a cash payment from the company and relinquish his shares, not the entity to whom the shares were initially issued.

Not only was @vand's statement about lending capital 100% logical, the idea of understanding the best time to do so is also sound. Absolutely correct to do so when the company NEEDS capital and is trying to raise it (or when it would be expensive for them to do so) than when people are falling over each other to fund the business.


GS

Except that "your" capital never goes to the company. If they issue a share at £1 in the primary market they receive £1. If those shares rise in the secondary market to £2, and you then buy them from a seller, the company sees no further transactions and your £2 of capital remains outside of their balance sheet. Your £2 "capital" (and that extra £1) isn't theirs. They don't have it and half of your "capital" hasn't been lent or invested in any company at all. For someone that understands balance sheets better than the majority here that is odd. That is a "flaw" in your practically "flawless" defence.

[GoSeigen]

Except that "your" capital never goes to the company. If they issue a share at £1 in the primary market they receive £1. If those shares rise in the secondary market to £2, and you then buy them from a seller, the company sees no further transactions and your £2 of capital remains outside of their balance sheet. Your £2 "capital" (and that extra £1) isn't theirs. They don't have it and half of your "capital" hasn't been lent or invested in any company at all. For someone that understands balance sheets better than the majority here that is odd. That is a "flaw" in your practically "flawless" defence.

My capital does go to the company. It replaces the seller's capital which went to the company. If the company buys back its shares it gives me the cash value it is prepared to pay proportional to my investment. My capital is sitting right in the equity part of the balance sheet as paid up shares. It may be the nominal value of the share which is carried on the balance sheet but I am entitled to all the residual value of the company after more senior liabilities have been paid and if the shares are worth £2** then we can assume that residual value is also £2 (or alternatively the discounted cash flows I'll receive over the life of the company are worth £2).

There's also the interesting situation where the shares were issued at £1 and I am buying them at 50p.

GS
(**) The italicised part is important of course. I shouldn't pay £10 for a share which is only worth £2.

[dealtn]

Except that "your" capital never goes to the company. If they issue a share at £1 in the primary market they receive £1. If those shares rise in the secondary market to £2, and you then buy them from a seller, the company sees no further transactions and your £2 of capital remains outside of their balance sheet. Your £2 "capital" (and that extra £1) isn't theirs. They don't have it and half of your "capital" hasn't been lent or invested in any company at all. For someone that understands balance sheets better than the majority here that is odd. That is a "flaw" in your practically "flawless" defence.

My capital does go to the company. It replaces the seller's capital which went to the company. If the company buys back its shares it gives me the cash value it is prepared to pay proportional to my investment. My capital is sitting right in the equity part of the balance sheet as paid up shares. It may be the nominal value of the share which is carried on the balance sheet but I am entitled to all the residual value of the company after more senior liabilities have been paid and if the shares are worth £2** then we can assume that residual value is also £2 (or alternatively the discounted cash flows I'll receive over the life of the company are worth £2).

It really doesn't. Your capital goes nowhere near the company. In a sense you "replace" the initial "borrowing" of capital, but in practice you are giving your capital to the latest owner, and in liklihood the amount of your capital that you considered to be invested is a different amount to the initial. At best you could argue you are giving "some" of your capital to the corporate sector - even then its tenuous.

[Dod101]

I think it is a huge mistake to think that when you buy a share you are lending money to a company. Of course you are not. You are buying a stake in the enterprise and will benefit or not in the same way as any other owner/ part owner. It is by no means the same as lending money to the enterprise. No guarantee of any return whether of capital or income but the prospect of unlimited benefits!

On the one hand you will participate in its trading and results, benefiting from any increase in the value of the enterprise and in its earnings, whereas lending to the company you are offering usually a form of short term finance in return for a fixed rate of interest. The financial health of the company is of interest of course so that you get your income and a good prospect of repayment of the capital on the terms agreed.

Dod

[Bubblesofearth]

It really doesn't. Your capital goes nowhere near the company. In a sense you "replace" the initial "borrowing" of capital, but in practice you are giving your capital to the latest owner, and in liklihood the amount of your capital that you considered to be invested is a different amount to the initial. At best you could argue you are giving "some" of your capital to the corporate sector - even then its tenuous.

I think GS may be referring to this;

https://www.liveflow.io/learn/is-common ... 20earnings.

"Common stock is an asset for the company that issued it because it represents ownership in the company. "

BoE

[Dod101]

It really doesn't. Your capital goes nowhere near the company. In a sense you "replace" the initial "borrowing" of capital, but in practice you are giving your capital to the latest owner, and in liklihood the amount of your capital that you considered to be invested is a different amount to the initial. At best you could argue you are giving "some" of your capital to the corporate sector - even then its tenuous.

I think GS may be referring to this;

https://www.liveflow.io/learn/is-common ... 20earnings.

"Common stock is an asset for the company that issued it because it represents ownership in the company. "

BoE

I know nothing about US accounting but of course in internationally recognised company accounts, nominal equity ( capital) is a liability on the company balance sheet. Assets are what they acquire with that capital.

Dod

[dealtn]

It really doesn't. Your capital goes nowhere near the company. In a sense you "replace" the initial "borrowing" of capital, but in practice you are giving your capital to the latest owner, and in liklihood the amount of your capital that you considered to be invested is a different amount to the initial. At best you could argue you are giving "some" of your capital to the corporate sector - even then its tenuous.

I think GS may be referring to this;

I doubt it. That is about "issuance" which is a primary market transaction and nothing to do with transactions involved in the secondary market where one "investor" buys shares from another.

[GoSeigen]

I think GS may be referring to this;

https://www.liveflow.io/learn/is-common ... 20earnings.

"Common stock is an asset for the company that issued it because it represents ownership in the company. "

BoE

Common stock definitely is not an asset, it is a liability -- the shareholders have a claim on the company's assets.

Assets = Liabilities + Equity

liveflow.io looks like it has been produced by Artificial Ignorance Intelligence.

GS

[Bubblesofearth]

I think GS may be referring to this;

https://www.liveflow.io/learn/is-common ... 20earnings.

"Common stock is an asset for the company that issued it because it represents ownership in the company. "

BoE

Common stock definitely is not an asset, it is a liability -- the shareholders have a claim on the company's assets.

Assets = Liabilities + Equity

GS

I don't agree with that and cannot find any reliable source online that says shares are a liability. Even your equation has equity as distinct from liabilities.

Can you provide a link to a reliable source that says common stock is a liability?

BoE

[Dod101]

Common stock definitely is not an asset, it is a liability -- the shareholders have a claim on the company's assets.

Assets = Liabilities + Equity

GS

I don't agree with that and cannot find any reliable source online that says shares are a liability. Even your equation has equity as distinct from liabilities.

Can you provide a link to a reliable source that says common stock is a liability?

BoE

You only need to look at any company Balance Sheet and you will find that equity is included as a liability.

Dod

[Bubblesofearth]

I don't agree with that and cannot find any reliable source online that says shares are a liability. Even your equation has equity as distinct from liabilities.

Can you provide a link to a reliable source that says common stock is a liability?

BoE

You only need to look at any company Balance Sheet and you will find that equity is included as a liability.

Dod

No it isn't. it's listed separately as equity.

BoE

[GoSeigen]

You only need to look at any company Balance Sheet and you will find that equity is included as a liability.

Dod

No it isn't. it's listed separately as equity.

BoE

OMG!

GS
EDIT: Sorry, that's a bit cryptic, but please read a basic text on double-entry accounting...
EDIT 2: The essential difference between liabilities and equity is that liabilities are amounts due from the company to third parties, while equity is amounts due to company's owners, the shareholders. They are both obligations of the company, whereas assets are obligations of other parties to the company. The earlier identity (equation) expresses the mathematical requirement that liabilities and assets are equal -- a corollary of double entry system.