The term bear market refers to the phase in which financial markets experience a sharp and prolonged decline in prices, often defined as a drop in asset values of 20% or more from their peak, and this trend lasts for a relatively long period.
Why is it called a 'Bear Market'?
The term 'bear' was used because when a bear attacks its prey, it uses its claws to strike from top to bottom, which indicates a downward market movement. Conversely, a bull market is named after the bull that attacks by thrusting its horns upward.
Characteristics of a bear market:
• General pessimism among investors.
• Increase in selling activities out of fear of further losses.
• Slowdown in economic activity and a decrease in profits.
• Decline in investor and corporate confidence.
Real-life examples:
The world has witnessed several bear markets, such as:
• The 2008 financial crisis, which led to massive collapses in global stock markets.
• The crypto market in 2022, where the prices of most cryptocurrencies dropped by more than 70% from their peaks.
How does an investor deal with a bear market?
In such circumstances, investors tend to:
• Hedging with safe assets like gold or the dollar.
• Reducing risks, or temporarily halting purchases.
• Exploiting opportunities by buying on the dip, if they have a long-term vision.
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