Bull and Bear Markets Definition

June 4, 2008 · Posted in Stock Market 


If you have been investing for some time now or have taken a special interest in the stock market, you might have heard the expressions Bull and Bear markets mentioned a small number of times. In a roundabout way, these terms are used to describe general actions and attitudes of the stock market. They are only utilized when the stock market reaches a certain state or demonstrates clear signs that it is heading towards that specific point, know as either bear or bull. In the beginning, all this might sound rather complicated but I assure you it is not. So, if you’re interested in finding out what exactly is intended by a bull or bear market please read on.

Bull market refers to a condition of the stock market at a time when financial confidence is high and the general market is climbing in value. On the other hand, a Bear market refers to exactly the opposite. In general, investors employ the term Bear to describe a widespread decline in value, normally anywhere from 15% to 20%, of the stock market or any other asset over a 12 month period.

I guess now you are wondering how one of these totally contrasting market sentiments can influence your investments. The short answer is very little and the explanation for this is quite simple to comprehend. Experienced investors know that the stock market is constantly shifting and asset values can adjust in a matter of days. If look at any bear market, even at its lowest point, some stocks still manage to do quite well. The same can be applied for a Bull market since there are plenty of stocks that fail to meet investor expectations. For this very reason, investors should give enormous importance to diversification seeing as it is the only effective method to insure the total safety of a portfolio against unexpected stock market fluctuations.

In conclusion, it is worth making clear that the stock market is directly influenced by a wide range of economic factors. A strong economy, stable social political conditions and thriving new stocks could generate a bull market. At the same time, social political changes, discouraging economic forecasts or high unemployment rate can lower investor confidence and in this way trigger a bear market. The best solution is to hang around and wait to see if the storm passes, because the stock market will always recover, sooner or later.

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