Decoding Bull Markets: Why are they boring?

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take your money and go to Las Vegas.” 

Warren Buffett

The Bull Run

Since March ‘23 India has been witnessing a bull market. The positive growth outlook, Govt capex spending, and continued institutional buying have all combined to fuel the bull run. Nifty 500 index has run up ~63% between March ‘23 and mid-July ‘24. However, a cursory look at the trading data shows that the run-up has been anything but exciting. 

Between 28th March 2023 and 18th July 2024, there were 323 trading days. Out of this Nifty 500 recorded positive returns on 212 trading days or 65.6% of the time. What’s interesting is that the index rose by more than 1% in only 18 trading days or 5.6% of the time. Out of the 111 trading days of negative returns, the index fell by more than 1% on only 16 trading days, or 5% of the time. Very small extreme movements in both directions. 

Now let’s look at the India VIX index. This index measures the market’s expectation of volatility over the near term. Specifically, it reflects investor perceptions of the market’s volatility for the next 30 days. A higher VIX value indicates higher expected volatility and greater market uncertainty, while a lower VIX value suggests lower expected volatility and a more stable market. The India VIX is often referred to as the “fear gauge” or “fear index” because it tends to rise during periods of market stress or uncertainty. For example in the run-up to election results, the Vix index steadily rose from 14.62 on 4th May 2024 to hit 26.75 on 4th June 2024 before dropping down. Since Jan 2020, the average Vix value has been 18.62. However, during the recent bull run the average Vix has been just 13.04.   

Bull Markets are Boring?

Here’s why:

• Uptrends involve gradual and consistent price increases. This steadiness can lack the excitement and unpredictability that come with rapid price changes or market volatility.
• Uptrends typically feature less dramatic price swings compared to downtrends or volatile market conditions. This means there are fewer opportunities for dramatic gains or losses.
• A steady uptrend doesn’t provide as many sensational stories or dramatic headlines, making it less captivating for the media and, consequently, the general public.
• During uptrends, many investors adopt a “buy and hold” strategy, which involves purchasing stocks and holding onto them as they appreciate. This reduces the frequency and necessity of active trading, making the market seem less dynamic.

On the other hand, bear markets are characterized by high volatility, with significant price swings and uncertainty. Let’s consider some trading data during the market downtrend caused by the Covid crisis. Between 14th Jan 2020 and 16th July 2020, Nifty 500 tanked by 13%. During this period there were 126 trading days. The index recorded positive returns on 68 trading days or 54% of the time and negative returns on 58 trading days or 46% of the time. The index gained more than 1%, 23.8% of the time, and lost more than 1% just 20.6% of the time. The average India VIX during this period was 30.2. 

It is important to understand that navigating a bear market successfully, requires managing fear and uncertainty, making strategic decisions under pressure, and maintaining discipline. While many investors lose money during bear markets, long-term investors find bear markets exciting because they can buy high-quality stocks at lower prices, potentially leading to significant gains when the market eventually recovers.

What’s important?

Just remember that markets will not be boring forever. At some point, the excitement and volatility will return as will the opportunity to bargain hunt.

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Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.