What is a Bear Market? Everything You Need To Know

What is a Bear Market
What is a Bear Market, Image Source

The chances of surviving the attack of a bear are significantly low. The animal attacks its prey or other predators with a very hard hit. The term “Bear Market” derives from the way a bear swipes down to attack its opponents. It is used to describe a prolonged drop in prices in the markets. The financial markets of stocks, indices, and commodities are greatly impacted by the confidence of investors. This is what is called “The Sentiment Factor” of investments. During this period, when fear is present, traders and investors start selling their assets based on their feelings. When those feelings turn negative panic wins all other emotions and the sell-off lasts for a longer period of time. The market is supposed to have turned “Bearish”.

But how long does this sell-off period truly last to characterize it as bearish? Many economists define it as the period in which an asset lost more than 20% of its market price, even if this happened during one or two trading days. On the other hand, many are those who support the argument that a whole market needs more time to maturity to be found under the serious hunt of “the bears”. This gradual negative shift will usually be supported by events of serious economic slowdown such as unemployment or high inflation. This brings us to the next point: how can investors be protected from bear attacks and minimize loss?

Bear Market
Bear Market
How to invest during Bear Market periods

A period of recession, naturally, gives signs in advance, which is why we need to keep reading the news, plan ahead, reduce risk in the portfolio, as well as proceed to increase cash and decrease inventory. During bear markets, a good choice is mutual funds and funds related to gold, health, and consumer staples.
Bear markets’ appearance seems apparent in retrospect, but hindsight is always a must. It’s not easy to decide whether inventory costs have peaked and you undergo a fantastically moderate correction, or the economy has turned into a complete-blown endure. Investors have developed ways to deal with the uncertainty of determining whether the market undergoes the “Negativity Phase”. From 1930 to 2016, the average bull market period lasted 9 years with an average cumulative total return of 480%. The average Bear Market period lasted 1.5 years with an average cumulative loss of -41%. It is worth mentioning that during a bear market investors could consider using the tool of taking short positions. However, attention is required if the market turns bullish again. Alternatively, investors can focus on buying stocks and crypto at the discounted rates that the bear market will offer.

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