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We’re 6 Years into a Bull Run: What to Do Next?

Tomorrow – the 10th of March 2015 – will mark the sixth anniversary of a bull run in Singapore’s stock market which has taken the Straits Times Index (SGX: ^STI) a stunning 135% higher than where it was on 10 March 2009.

To some investors, it may be the best of times simply because of the gains that have occurred due to the huge bull run that the index has taken. Yet to some others, it’s’ the worst of times as they may be concerned that another downturn could be just around the corner.

So, what is a Foolish investor to do?

Invest in great companies

In a bull market like we’ve been in, thinking about whether it is time to buy or sell shares may not be enough. What the Foolish investor might want to do is to continue to search for great companies, regardless of whether we’re in a bull run or a bear market.

The focus on quality companies should not change according to the different seasons in the stock market.

One way to look for quality companies could be to focus on firms with rising revenue and profit.

In this case, Sarine Technologies (SGX: U77) may fit the bill. The diamond systems manufacturer has been increasing the sales of its Galaxy diamond-planning systems with revenue and profit following suit.

Sarine Technologies' business metrics

Source: S&P Capital IQ and Company’s filings; data for 2014 are as of 30 September 2014

The rise in revenue & profits has helped Sarine Technologies’ share price climb multiples times higher than where it was at the height of the last bull run in 2007. You can see this in the chart below plotting changes in the company’s share price:

2015-03-08 Sarine Tech Shares

Source: Google Finance

Ease into the market

Another thing investors can do after a protracted bull run would be to diversify our investments over time.

Said another way: Instead of plunking down all your money over narrow timeframes, Foolish investors could be better off adding to winning companies slowly over time. This approach also allows the Foolish investor to accumulate knowledge of his or her companies over time.

In case you are afraid of missing out on future share price gains because a time-diversification approach may cause you to miss getting onto the train early, the wise words of investing guru Peter Lynch is worth repeating:

“Well, you’ve got plenty of time. You could have bought Wal-Mart ten years after it went public — Wal-Mart went public in 1970. You could have bought it ten years later and made 30 times your money. You still could have made 30 times your money because ten years after Wal-Mart went public they were only in 15 percent of the United States.”

Cash in hand

Coming off the previous point, another consideration would be to build up a proportional cash position to take advantage of any market downturns. My Foolish colleague Ser Jing has previously pointed out the differing gains and losses the Straits Times Index may experience over time.

Return distribution for Straits Times Index

Source: S&P Capital IQ

Although the share market in Singapore may be volatile from time to time, leaving fully-invested investors to experience said whip-saw effect (though the share market has historically shown a clear upward bias!), for the Foolish investor with a cash reserve, market volatility may represent opportunity to scoop up bargain-priced shares.

Foolish takeaway

In truth, the best thing to do in a bull run could be no more different from what a Foolish investor would do in a bear market: Continuing the quest to look out for better companies and keeping our cash ready for opportunities that present itself.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.