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MARKET COMMENT
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Fact: bull markets always follow bear markets. Though it may not feel like it at the moment, sooner or later, shares will rise and never look back. After three years of declining portfolios, Fools ought to get ready for the forthcoming bull run. Here's what to consider: 1. Prepare to be surprised If the end of the 1973/74 bear market is anything to go by, the next bull run will start with a sudden surge. The recovery will catch most investors unawares, leaving them on the sidelines or chasing shares at much higher prices. In fact, maybe the bull market started in March at FTSE 3,287. Difficult to tell, isn't it? Rather than try (and usually fail) to time the exact point when the market will take off, it's best to do the groundwork in advance. Buy shares when they're cheap (during the bear), and hold on. 2. Prepare for higher P/Es Bull markets require a different valuation mindset. Having witnessed solid blue chips languishing on single-digit price to earnings (P/E) ratios, bear markets often create much 'value' complacency. Unfortunately though, bargain prices never last forever. You see, the market is forward looking. It will -- at some point -- correctly anticipate a recovery in corporate earnings and a return to general profit growth. And P/Es will rise, sometimes significantly. So if you've bought shares cheaply in the bear, be careful not to sell out at the foothills of the next bull market because of 'over-valuation'. 3. Prepare to hunt for new shares
Though reliable in a falling market, 'defensive' bear sectors like tobacco, supermarkets and utilities will lag behind in a bull phase. That's because these industries won't experience a dramatic earnings boost when the economy brightens up. Instead, sectors such as media, banking and IT will be among the leaders; a rebounding economy will have a far greater affect on their cyclical profits. Even so, the best bull shares to own are small growth companies that are too young and too obscure to have upset a crowd of investors in the previous bear. With no history of disappointment to hold them back, such shares often travel unimpeded to ever-greater heights, especially if investors can build 'castles in the air' with booming sales of innovative new products.