Investing what is a Bear Market

Bear market is basically a term used to describe a market condition. Bear market is a state of depression or decline in market prices. It is also known as a period of recession or decline in stock market. This term is applied mostly in case of stock market however; it can be used for property, precious metals, commodities, advertising — including the value of stocks, bonds and other financial instruments.

To understand a deeper meaning of bear market, initially one has to understand what a bear is? Bears are pessimists. They hope that share prices will fall and therefore they sell shares now at a higher price hoping to buy them back later at a lower price. The market is said to be ‘bearish’ when share prices are falling.

Therefore bear market is a pessimist situation in which investors anticipate low prices and selling continues which increases pessimism. For the past few years US stock market is facing a bear market situation due to scarcity of resources and collapse of banking system. The main characteristics of bear market in a country are weak economic situation including low employment rate, low income and low profits incurred. Low confidence of investors is also a huge indicator toward bearish market trends. These markets are different to bull markets due to time factor. They move at a slow pace and investors are cautioned against rushing.

There are four phases in a bear market. An investor needs to understand these phases in order to invest intelligently and minimize his loss. In the initial stage the investors ignore all indicators and continue to buy, the over all trend remains optimistic and continued confidence in market prices remains high. At a later point price does not raise with increasing selling pressure due to which investors take profit and exit positions.

In the second phase the market condition becomes clearer and concerns are expressed by investors. The sentiments become negative and market conditions worsen. At this time selling is increased and buying dries up. Market indices and many securities attain new trade lows; trading activity continues to decrease.

The third phase is marked when bear market trends are recognized. Investors turn away from buying in order to save their profiles. There would be further deterioration in market leaders. People tend to move away from industrial sectors like technology and withdrawn their investments.

In the final stage stock prices reach the bottom. Investors start panicking and sell their stock at new low prices; these are mostly those investors who have entered market during bullish trends. Most of the investors react to this thus eventually giving way to bull markets.

Investors who enter stock market for the long-term need to remember that bull trends are often followed by bear trends and are frequent and cannot be avoided. They need an appropriate investment strategy and better understanding of bear markets before they lose much of their profits incurred during last bull markets.

To survive a bear market firstly an investor needs to be realistic. It is normal for a market to face downward trends and it will be over after completing its cycle. Therefore fighting back can be quite dangerous. Mostly economists insist that the main surviving tip is to play dead. Playing dead means to put your portfolio at sidelines, however by diversifying your portfolio you can also alleviate some of the negative effects. 

Sit on your cash reserves a bit longer. This will help you to invest when a profitable opportunity arrives. Cash is considered the king during bear market trends. Also investing intelligently is another survival tip. Do not try to invest in experimenting businesses. Avoid sticky situations and rather invest in non-durable items like soaps, shampoos, food items etc. as during a decline people still need to use these items.

Bear markets need to be understood as it causes loss of million dollars to the investors. They do not last forever therefore; their arrival should be identified in advance. An apt strategic plan is required and investors should stick to it during bear markets.