Bear Markets

Bear MarketIt is time to address bear markets now that we have given you the run down about its counterpart – bull markets. You won’t see these two aggressive animals strutting down Wall Street anytime soon, but they are two key components of the investment world that go hand-in-hand.

Bear – the opposite of Bull

Bear markets occur when stocks or investments start to lose value and in turn initiates a trend of selling in order to reduce a loss. This trend is also met with a general feeling of pessimism that grows as selling continues. A bear market is only defined when the investment falls more than 20 percent over more than a two month period. Otherwise it could be a short-term trend that doesn’t require drastic measures to be taken.

There are a few different theories about why a bear market was given its name. First, when bears attack their opponents they swing their paws in a downward motion and this is meant to represent the downward swing of the market.  Secondly, the concept of a “bear market” can be traced back to the 18th Century when traders would sell their bear skins in anticipation of prices decreasing.

Factors to Help You Spot It

It can only help you and your investments to know what to be aware of in order to anticipate a possible bear market. Investors keep in mind three factors at all times when considering their finances: global economic concern, national economic data and corporate financial responsibility. Stay up to date on current affairs in these categories in order to detect market possibilities.

Bear markets often occur when the economy is in a state of recession – high unemployment rates can be one factor in determining this. The biggest bear market in U.S. history took place during the Great Depression of the 1930’s.

How to Navigate

1. Wait It Out

It’s common for investors to want to sell their stocks once markets and values start to decrease. However, this should be the opposite. Sometimes it can be more beneficial to hold onto your stocks, wait for the return of the bull market upswing and sell when prices are higher. With patience, you can turn more of a profit than if you panic-sell.

2. Don’t Get Ahead of Yourself

As stated above, sometimes it’s better to wait it out. It is important to not confuse a correction with a bear market. Corrections are short-term downturns – less than two months – that will rebound rather quickly. They often occur after a spike in the market and bring prices and values back to a more realistic level. Once again, don’t get ahead of yourself and start to panic. Evaluate the scene of the market before selling off stocks that lose small values, as it will probably benefit you in the long run to hang on.

It is common for investors to jump between these two markets as stocks fluctuate because in order for the system to work then there has to be people willing to buy (bull market) and people willing to sell (bear market). As long as you stay knowledgeable about what’s happening in the market and what’s happening with your money, your success is imminent.