What is a Bear Market?

Written by Charlotte Wood (last updated February 21, 2009)

In the world of investing you hear all these different terms thrown around that you may not completely understand. This lack of understanding can definitely hinder you in your quest to invest. If you can understand what a bear market is, then you'll be well on your way toward a better chance at investment understanding and success.

A bear market, in a few words, is simply a decline in the market—however this decline has a bit more meat to it. The bear market is not only a decline in the market, but a sharp decline in prices over a specific amount of time. During a bear market, sellers will sell as much as they can as a response to the initial drop in stock prices. This usually results in a chain reaction and can lead to something like the Great Depression in the 1930s. The biggest bear market in US history was between 1930 and 1932 right after the stock market crash.

Much of a bear market depends on attitude; the substance of a bear market comes from the investors' response. When investors see a significant threat to the market, they panic and then panic leads only to more panic, creating a bear market where everyone's trying to sell and no one wants to buy. Bear markets deal with investors' emotions and financial fears and that's how they grow and escalate. These kinds of markets have a bad tendency to spiral into ruts which are hard to remedy.

The results of a bear market can be relatively mild (like a period of a few years where the market is slowly, but steadily declining. However, bear markets can also be detrimental to the stock market at large, at worst completely devastating the market and countless others' finances as well, as demonstrated in the Great Depression. As an investor you'll need to watch the market carefully looking for signs of market panic so you can protect your money. If you're lucky the market will stabilize and all will stay okay, but you do need to be on the lookout.

Author Bio

Charlotte Wood

MORE FROM CHARLOTTE

Choosing the Right Cosmetics

The world of cosmetics is large and daunting and sometimes it's hard to determine what to use. The fact is your face and ...

Discover More

Understanding Stock Brokers

There are so many different facets to the stock market and the stock broker is only one of them. With stock brokers, to ...

Discover More

Do Cellulite Creams Work?

There are several methods to treat cellulite, and you may be wondering which treatment is right for you. If you're ...

Discover More
More Money Tips

Stock Market for Beginners

If you have never worked with it before, the stock market isn't exactly the best of places for beginners. That is, unless ...

Discover More

What is a Derivative?

A derivative is a risk-shifting agreement, which is valued based on the underlying asset. The underlying asset could be a ...

Discover More

Donating Stocks

It would be nice if we could all get to the point where we have too much money and in a manner of speaking, that's what ...

Discover More
Comments

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] (all 7 characters, in the sequence shown) in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 6Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is 2 + 8?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)