A new ASX bull market could be coming. Don't make these 3 costly mistakes

Are you ready for the next bull market?

| More on:
A gold bear and bull face off on a share market chart

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Investors have always had to deal with the fact that share market crashes are an inevitable part of investing in shares
  • However, it's easy to forget that while bear markets are unavoidable, so too are bull markets
  • Investors can make costly mistakes during both, so avoid the temptation to do clever things, make a quick buck, or forget about diversification

The pessimists out there like to tell us investors that a market crash is always inevitable on the stock market. Well, they're not wrong. The stock market as an institution has been around for centuries. Over these centuries, we have seen more market crashes than we can count. 

There are many famous examples etched in history such as the 'Black Tuesday' crash that heralded the Great Depression, the 'Black Monday' crash of 1987, the global financial crisis, and most recently, the COVID crash of 2020. Going back even further, we could also talk about the 'South Sea Bubble' of the 1700s.

But here's the thing to remember about stock market crashes: they never last. Not once in history has the stock market, be that of the United States, the United Kingdom, or Australia, failed to exceed a previous all-time high.

As such, we can conclude that, just like the next stock market crash is inevitable, so too is a new bull market.

But just as investors can make mistakes in a market crash, a bull market can also lead us astray. So here are three costly mistakes to avoid during the next bull market.

3 mistakes you don't want to make during the next ASX bull market

Getting clever

An enthusiastic bull market tends to create pockets of euphoria in the markets after a while. Put simply, investors get carried away with making money and send the prices of certain stocks through the roof for no fundamental reason. We saw this with 3D printing shares in the 2010s, cannabis shares in 2017 and tech shares in 2021 and 2022.

During these times, investors might be hit with a severe case of FOMO (fear of missing out) and might think they are doing something wrong by not piling in. But these rallies almost inevitably peter out once they run too long. And that's something you really don't want to get caught up in.

So remember that the most successful investors tend to stick with their strategies over both bull markets and bear markets. Changing horses midstream on a FOMO-induced whim rarely works out well.

Trying to time the market

You might have heard the phrase 'time in the market beats timing the market'. It is one of the most useful pieces of advice you can hear when it comes to investing. Often, it is used as a caution for investors who might be thinking about selling out of their shares in anticipation of a market crash.

But it also applies to a bull market. If you have faith that a company will continue to be a winner over the coming decades, then there is absolutely no reason why you should try and get tricky with jumping in and out of its shares. Take US tech giant Apple for instance.

Apple is undisputedly one of the highest-calibre businesses in the world. Over 2020, the Apple stock price rose by almost 80%. But if you were an Apple investor and thought it was a good idea to 'take some profits off the table' after this rally, you would have made a big mistake.

Apple proceeded to rise another 34% over 2021, and today stands a good 45% above where it finished 2020 at:

Created with Highcharts 11.4.3Apple PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

As such, a long-term investor who didn't try and time the market would have done immeasurably better than someone who looked to make a quick short-term buck.

Not keeping to a diversified portfolio

Every investor knows of the benefits of diversification, or not having all of one's eggs in the same basket. Yet an ASX bull market can easily help investors forget about these benefits. Bull markets tend to see some corners of the share market perform better than others.

Growth and cyclical shares like those in the tech, resources, and financials space tend to power ahead, while defensive shares like gold miners or consumer staples stocks will show a tendency to tread water. This can distort investors' decision-making, and prompt them to chase the sorts of shares that are rising.

But following this path can be dangerous. You want a healthy mix of high-quality companies from different corners of the market in your portfolio. Don't forget that and only chase the winners during the next ASX bull market.

Motley Fool contributor Sebastian Bowen has positions in Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

A group of young people lined up on a wall are happy looking at their laptops and devices as they invest in the latest trendy stock.
How to invest

3 common investing mistakes with ASX shares (and how to avoid them)

Avoiding these mistakes could protect your capital when investing.

Read more »

Man putting in a coin in a coin jar with piles of coins next to it.
How to invest

How to generate $52,000 of annual passive income starting at $0

The share market is a great place to generate income. Here's how to do it.

Read more »

Man holding fifty Australian Dollar banknote in his hands, symbolising dividends, symbolising dividends.
How to invest

How to build a passive income portfolio with $20,000 and ASX dividend shares

Here's quick guide to generating income from the share market.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
How to invest

How to start investing in ASX shares with just $1,000

Starting out can be intimidating but it needn't be.

Read more »

Person handing out $50 notes, symbolising ex-dividend date.
How to invest

How to build a $1,000 a month passive income stream

Here are two strategies for generating a boost to your income.

Read more »

Woman looking at a phone with stock market bars in the background.
How to invest

Can't find ASX shares to buy right now? You're not alone

It's hard to find a good bargain in the markets right now.

Read more »

A little girl fills her jar up with coins with a smile on her face.
How to invest

Harness the power of compounding: 3 tips to turbocharge your ASX share portfolio

Compound interest can change your life if you let it.

Read more »

a smiling picture of legendary US investment guru Warren Buffett.
How to invest

What Warren Buffett would look for in ASX shares

Here's how you could invest like the Oracle of Omaha on the ASX.

Read more »