In the investing world, the terms Bears and Bulls are often used to describe the financial market conditions. The understanding of these terms helps you as an investor to know how the market moves and its effect on your portfolio.
What is a Bull Market?
A Bull market is used to describe a market that is on the rise with stocks appreciating in value over an extended period. In this instance, there is a sustained increase in price – say in equity markets in the prices of companies’ shares. The term is often used when describing securities like bonds, stocks and commodities, however, bull markets may also occur in other investments such as real estate.
In a Bull market, it is normal to find the country’s economy booming and employment rates high and at times like this, investors are hopeful that the increase continues over the long term. Historically, bull markets tend to last for months or even years.
What is a Bear Market?
A bear market is used to describe a market that has experienced a lengthened decline in prices. In this instance, securities prices fall 20% or more from recent highs due to an overall pessimism and negative investor sentiment.
Also, a drop in investor confidence could trigger the start of a bear market. This often happens when investors percStoveive that something is about to happen, hence taking action – which would be selling off shares to avoid incurring losses. Bear markets may also come with general economic staggers such as a recession.
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During a bear market, a country’s economy will typically be sluggish with low disposable income available, weak productivity, a drop in business profits and increased unemployment rate due to job losses by companies seeking to cut costs in order to stay afloat.
What to do in a Bear or Bull market
The key factor in deciding whether a market is bull or bear is by gauging how it is performing over the long term. While it is nearly impossible to time the markets, critical monitoring of the movement will help a wise investor know what step to take and when to take it.
Here below is a virtual map for either riding the bull when the market is on the high or taming the bear when the market is seemingly dipping.
Riding the bull
As an investor, a bull market represents the opportunity to ride on the back of rising prices to buy stocks as early in the trend as possible, and sell them when they’ve reached their peak.
Typically, any losses during a bull market should be minimal and temporary hence giving you as an investor, the confidence to invest in more equity with a higher chance of making a return.
To profit during a bull market, traders utilize lots of strategies which include increased buy and hold and retracement.
Taming the bear
Some ways to tame the bear and survive an economic downturn are:
Keep calm: During a bear market, one of the strategies to employ is to stay calm and not panic or make sudden moves- just as you would if you met a bear in reality. Put a larger portion of your portfolio into money market securities and other instruments with high liquidity and short maturities.
Contain your fear: What is today a massive global devastation will one day, in years to come, be remembered as nothing more than a “once upon a time” event. Never forget that fear clouds rational judgment and could mar your financial goals if you give in to it.
Diversify: The process of diversification is simply spreading your portfolio through various asset classes such as stocks, bonds and cash amongst others to avoid the potential negative effect of putting all your eggs in one basket. How you allocate your assets is dependent on your risk tolerance, time perspective and financial goals.
There are lots of ways to profit in both bear and bull markets especially when you use indicators to spot when either phases are beginning or ending.
While it is evident with the current pandemic what stage the financial market may be tilting towards, there are opportunities to be harnessed even in Bear markets. As your financial experts, it is our job to guide you on the path to tapping into those opportunities.