Being fully invested in stocks at the beginning of a bull market makes for spectacular success. But doing so takes some courage. Then again, who says you have to get the whole enchilada? You can begin looking and get your first stock now and slowly build your portfolio as the bull market emerges.
When the bull market is in its infancy, start investing by using the following approach:
Be a bargain hunter. At the bottom of a bear market, you have a good chance of acquiring stock at share prices that are near (or in some cases below) the book value of the companies they represent. You’ll also have less risk when you acquire the shares of a company that is generating positive growth in sales and earnings.
Look for strong fundamentals. Is the company you’re choosing exhibiting solid sales and earnings? Are sales and earnings rising compared to the prior year? How about from the same quarter last year? Do the company’s products and services make sense to you? In other words, is it selling stuff that the public is starting to demand more of?
Consider the stock’s class. Some stocks are more aggressive choices than others. This choice reflects your risk tolerance as well. Figure out whether you want to invest in a small-cap stock with phenomenal growth prospects (and commensurate risk) or a large-cap stock that’s a tried-and-true market leader.
Choose appropriate industries. Look at industries that are poised to rebound as the economy picks up and individuals and organizations begin to spend again. In a rising market, cyclical stocks such as those in the automobile, housing, industrial equipment, and technology industries resume growth.
Take stock of your portfolio. As you start to add stocks to your portfolio, first analyze your situation to make sure that you have diversification not only in different stocks and/or stock mutual funds but also in nonstock investments, such as savings bonds and bank accounts.
Evaluate your personal goals. No matter how good the market and the foreseeable prospects for growth are, stock investing is a personal matter that should serve your unique needs. For example, how old are you, and how many years away is your retirement? All things being equal, a 35-year-old should have predominately growth stocks, while a 65-year-old requires a more proven, stable performance with large-cap market leaders.