August 24, 2018 2:42 pm

What a bull market is, and why it matters to everyone

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While stock market watchers are celebrating the longest bull market in U.S. history, the milestone shouldn’t change the way people live their lives, experts say.

“When markets are high like this for a prolonged period of time, we call it a bull market,” said Lisa A. Kramer, a finance professor at the University of Toronto’s Rotman School of Business.

“It reflects that times are really good.”

The good times have been rolling since March of 2009, according to Bank of America Merrill Lynch, the research firm CFR and S&P Dow Jones Indices. That’s been — in part — due to the recovery from the economic recession, and due to tax cuts in the United States, Kramer said.

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The stock market’s valuation reflects the overall value of the companies listed on it, Kramer said. As those companies grow in value, so does the overall market. And while Canadian stocks have not been on as big of a tear as those on the U.S. market, Canada remains “very tightly tied” to whatever happens south of the border, she said.

A booming stock market usually means more jobs, better consumer products and more buying power for the average person, Kramer said.

“It doesn’t necessarily show up as a higher salary, but with our given salary we can afford goods that make our lives better,” she said.

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A bull market can also boost the value of the Canada Pension Plan, and whatever pension plan people might have through work, according to Stephen Foerster, a finance professor at Western University’s Ivey Business School.

“If you don’t have a stock portfolio, it may affect you more than you think,” Foerster told Global News on Friday.

But that doesn’t mean it’ll last forever. Over the long term, markets generally trend upward, but they do fluctuate and can fall steeply, both economists say. That means it’s tough to predict or prepare for that inevitable downturn.

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“It’s better to just consistently contribute to a retirement account and try not to get nervous about specific things that might be happening,” Kramer told Global News.

“The only thing we know with certainty is that there will be volatility,” added Foerster.

Some economists describe a bull market as a period of uninterrupted growth after a spike of 20 per cent. A so-called bear market occurs when the market drops by 20 per cent and continues to trend downward over time, according to the same broad guidelines.

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But Kramer and Foerster say that definition is too arbitrary.

“We should not give as much attention as we do to so-called bull and bear markets, but rather, take more of a long-term perspective,” Foerster said.

Kramer says it’s best not to try to “outsmart” the market by trying to predict a bull or bear market, and instead to stick to a steady long-term plan.

“The best investment advice is to buy and hold,” Kramer said.

“Take a long-term perspective,” Foerster said. “Just ignore it and focus on the long term.”

© 2018 Global News, a division of Corus Entertainment Inc.

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