A bull market is an exciting stock market stage where investors think nothing can go wrong. The overall market sentiment remains highly positive. A bull rally is definitely beneficial for investors. Still, the market remains risky, and investors must be cautious while taking their positions. Many investors fail to book significant returns because of a few missteps. Here are common mistakes that investors make during bull rallies.
Mistake 1: Changing the Investment Process Drastically
The pomp and show of a bull rally may lure investors, and they can change their risk profile as the market shows significant new heights. Cautious investors in a bearish market may become highly optimistic during the bull rally and make risky trades through their trading accounts. Such risk profile change causes investors to leave behind tried and tested investment processes. They may go with opportunities overly discussed in the news and thus hyped unnecessarily. They may fall for such hypes instead of doing thorough research before investing.
Market 2: Misallocation of assets
High returns from equities during bull rallies convince investors that direct equity investment is the best way to maximise profits. An investor who has preferred mutual funds for years may think of it as a waste of time and can become restless for multi-fold gains. It may cause the divest from mutual funds. Such moves without sufficient market knowledge may be disastrous. Mutual funds are well-diversified investments in debt and equity-linked instruments and can sustain during market volatility. Sudden switching from one Investment to another may cause losing the safety net for the investor. One should avoid making lump-sum investments in direct equities. Hot stocks constantly remain in the news during strong markets, and investors may ignore the proper asset allocation. It would be best, as always, to consider investing a big sum in SIPs.
Mistake 3: Involving in Big Intraday and F&O Trades
Many investors may expand their risk horizons even more than equities. They can make small yet frequent trades using a free trading account on a toss of a bull run. Bull rallies may attract passive investors to explore the intraday trading world and also involve futures and options trading. If these are margin-based leveraged trades, they expose to 4-5 times higher risk. When a good trade can multiply the returns, a single bad trade can eat up all their capital. It cannot be denied that an upward moving market is considered best for day trading.
Mistake 4: Trying to predict the market movement without enough
Market timing is tricky. It requires investors to get enough financial knowledge to know the bull rally. Most investors lack the ability to recognise a bull market in its early stages and lose the window of opportunity. They must understand that every rise is not a bull run in the market. If they can make short term investments in a specific time frame, they can make significant returns.
Mistake 5: Investing in underperforming stocks
During a strong market at an all-time high, investors may consider underperforming stocks or stocks at 52-week lows. A stock with a 52-week low does not mean that it is undervalued and available at a lower price. Investors should not fall for low-cost stocks to include in their demat account.
Mistake 6: Avoiding the selling opportunities
It is necessary to sell the stocks at the right time and right price. In a bull market, investors may overlook the opportunities of selling stocks that have reached their peak. Such selling of stocks poised for price correction can maximise investors’ returns. But in the expectation of more enormous profits, investors stay invested in those stocks that tend to devalue and lose the profitable selling opportunities.
The Bottom Line
A bull market is a period of positivity with numerous opportunities for booking significant profits and wealth creation. Still, one should not forget that stock market investments are inherently risky, and the best practice is not to put all your hard-earned in stock investment. Try being patient to avoid mistakes in a bull market. Stay your investments diversified among different asset classes.