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Bull markets are the best place to learn investing

By Waseem Khan, CFA

Head of Research

EDGE Research & Consulting

Posted on: 05 Jan, 2023

When is the best time to start investing and get into the market? Most people would repeat the "be fearful when others are greedy" line but my take is a little different, especially if you are a young individual with limited savings (which you can afford to lose).

There is an old adage which goes something like – a market crash early in your career is one of the best learning opportunities. When you dig into it, what it really means is you need to start investing in a bull market, given a market crash is typically preceded by a raging bull market.

A bull market is a wonderful place to be in, it gets the adrenalines pumping, everyone is making money and everything you touch looks glorious. It will seem very easy at first, and you will keep allocating more money/risk into the market but soon enough, the market will tank, you will lose most of the money you made in the meantime.

Given you lose most of it and all of this eventually amounts to just about nothing, why invest in a bull market in the first place? Investing is complicated business and at the very least, succeeding in this requires that you give it adequate time. This is only possible when you are hooked, and bull markets provide just the right intoxication to get the curiosity flowing.

Given your savings are very limited at this stage, in the long run it hardly makes a difference if you 10x this money or it goes to zero. However, what is valuable is the curiosity the entire episode generates for investing which helps you turn it into a lifelong passion. Think of the amount you lose as the “course fee” for a real-life investing course.

On the flipside, if you got into a bear market, it might be theoretically possible to generate more returns when the market turns, but in all likelihood you will lose interest in investing by the time the market turns and in the end nothing of value will be earned. In the long run, being able to generate a 2% excess return on your lifelong savings will amount to much more than making a 10x gain on your savings at 20s.