You must experience a bull and bear market in the stock market.
Therefore, it is necessary to understand what are bull and bear markets, and how they affect our investment portfolio.
If you look at the stock market, the most famous words or terms often talked about are bull and bear markets.
These terms are most widely used by most investors and news channels.
Lots of words and meanings wrote about the bull and bear markets, but here’s what you need to know.
What are bull and bear markets?
In a nutshell, bull indicates the market is rising and bear indicates the market is declining.
Let’s look at the bull and bear market in detail.
What is a Bull Market?
A bull market is when a market rises 20% or more from its recent 52 week high.
A bull market can last a few months or years. Historically, they are more frequent than a bear market.
And last longer than a bear market.
According to Forbes, a bull market lasts an average of 2.7 years.
In a bull market, most investors feel more positive about the overall economy, current business cycle, and stock market.
Rather than speculating, investors come into the market and buy stocks.
More investors are buying means more money in the market.
Thus volume of buying activity and stock price rise.
Moreover, the bull market indicates several things such as stock prices are rising, strong corporate earnings, unemployment rates declining, GDP is increasing, strong economy, and vice versa.
What is a Bear Market?
A bear market is when a market decline 20% or more from its recent 52 week low.
The bear market won’t last long. According to Forbes, a bear market lasts an average of 9 months.
If you see the stock market 2020 crash, it began on 20 Feb 2020 and ended on 7 April 2020.
A bear market indicates investors are pessimists about the stock market.
Whereby many investors sell their investments.
As a result, stock prices tend to drop even lower.
It also indicates a slowing economy, declining corporate earnings, unemployment rates rising, and vice versa.
Focus more on growth stocks because they tend to perform well in a bull market.
In a bear market find out undervalued stocks to their fundamentals because they are best buys in a bear market.
If you are a long-term (buy and Hold) investor, you don’t need to think about short-term fluctuations.
because historically stocks perform well over a long period.
When your portfolio is well-diversified, then even if your one asset class goes down others might go up.
You can also consider buying foreign companies’ stocks to diversify your holdings to get benefits from another country’s bull market.
Bull and bear markets have different strategies for traders and investors.
Such as most traders in bear markets short sell stocks that they don’t own.
And most investors in bull markets, find and buy the undervalued stocks or just hold their existing shares.
Bull vs. Bear Markets
Difference between bull and bear markets:
|Bull Market||Bear market|
|Market is rising||Market is declining|
|Investors are confident||Investors are fearful|
|High employment||Low employment|
|A rise in GDP||A fall in GDP|
|A rise in corporate earnings||A fall in corporate earning|
|High demand for stocks||Low demand for stocks|
|Increasing stocks values||Declining stocks values|
|Sign of strong economy||Sign of weak economy|
Now, you may don’t have to find what are bull and bear markets.
However, if you’re curious about how the stock market works and you want to go deeper into it, consider subscribing to the beast investor newsletter to get the best investing insight blog post and resources.