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Bear vs Bull Markets: A Helpful Overview for New Investors

By Myles Leva

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Last Updated: February 2, 2022

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Bulls and bears are the two animals associated with moods in the stock markets.

The terms “bull market” and “bear market” are used to describe market conditions.

Bull markets are those filled with optimism. A bull market is a one that is on the rise. Most stocks are rising in value for a sustained period.

A bear market is the opposite; it’s a market filled with pessimism. Most stocks in a bear market are declining in value for a sustained period.

Let's review both bear and bull markets, as these are very common concepts when you get involved in the stock market, and investing. 

 

What do bulls and bears have to do with the stock market? 

These two terms refer to the moods of investors, which of course, partially direct markets.

Markets are greatly influenced by investor attitudes, which are in turn influenced by many other factors. So, these market terms are used as a simplified descriptor of how investors are feeling in a specific market.

Of course, the bear market meaning and bullish market meaning can imply different things depending on the market in question. For example, when referring to equity markets, a “bullish market” will mean sustained growth in the price of company shares.

The “bull market” terminology refers to an implication that investors have faith in these company shares increasing in value long-term. A bear market, on the other hand, would be when shares fall for a sustained period and investors fear that the downturn will continue for a long time.

These descriptions are general, but they aren’t often overused in investing circles. To be truly considered a “bear market”, the value of applicable securities must fall significantly from a recent high.

Market corrections do not constitute either bear or bull markets.

During a sustained bear market, economies slow down, unemployment rises as companies cut jobs to reduce expenses. On the opposite side, during a bull market, people are optimistic, the economy expands, and businesses have the space to hire and to invest in their own futures.

 

Why is it important to understand bull and bear market trends?

If for nothing else, understanding bull and bear market trends helps you understand the state of your investments. Without an understanding of these trends, an investor is wandering blindly. Investors can incur unnecessary stress and feel compelled to make irrational decisions.

These market trends are a part of investor psychology. How individuals perceive and react to market behavior helps explain rises and drops in the stock market.

Overall, understanding market trends is one of the key components of investment success.

 

Is it better to buy in a bull or bear market? 

If you buy during a bullish market, it’s implied that the value of your investment will increase for some time. Of course, if you buy at the tail end of a bullish market, you could be in trouble.

As a general rule, the ideal course of action for an investor is to take advantage of rising prices. That means buying shares early in a bull market (if possible) and selling around when they reach their peak. Losses during a bull market tend to be less severe.

During a bear market, by definition, prices are going down consistently. So, your chances of loss are higher, and you stand to lose more. You can try to buy during a bear market with the hopes of an upturn. But you are likely to lose much more before you even begin to win.

In fact, the above realities point beginner directors in a different direction. Safer investments like fixed-income securities, or other investments held for a longer time, are normally safer. For beginner investors, short-term, high-risk investment strategies are not recommended.

One alternative to the risks of bull and especially of bear markets is defensive stocks. These are stocks with performances that are less tied to the trends of stock markets.

They tend to be much more stable in both bull and bear markets. Utilities giants, especially those at least partially owned by the government, are good examples.

 

Conclusions

Bull markets and bear markets describe events that have happened before and will inevitably take place again.

Before entering the stock market, there are important concepts you should understand. The “bullish market” meaning and the “bear market” meaning are decidedly among those concepts.

By understanding these concepts, you can understand the behavior of stock investments and better adjust your own activities.

Photo by ANTONI SHKRABA from Pexels

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