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What is Bear Market and Should I Be Worried When It Happens

05 Jan 2023

When investing in the share market, you have to be accustomed to the natural flow of its market cycles. This means that you may need to seamlessly adapt from the profitable bull markets to deep market turndowns or bear markets. 

While bear markets may be unavoidable, knowing about them can help investors navigate them better. The arrival of a bear market should not always be interpreted as a cause of concern by investors. Short-lived bear markets can be used to secure one’s portfolio and explore latent investment opportunities.

What is a Bear Market?

Bear market alarms are sounded when the share prices in the stock market fall by 20% or more from the recent highs. This downturn may be deduced from the performance of S&P 500 stock prices since this index is regarded as the standard indicator of the entire stock market. However, the term ‘bear market’ may also be used in reference to any individual stock or stock index that has declined by 20% or more.

Similarly, while 20% is the benchmark figure, bear markets often tend to gradually plummet much deeper. At such times, stock market trading is characterised by a sense of pessimism and low confidence. Since investors continue to sell their stocks in the fear of falling prices, the market continues to experience a downward trend.

Navigating a Bear Market

Generally, the mere mention of the words ‘bear market’ can raise apprehensions among investors. However, since a bear market tends to be short-lived, strategically manoeuvring the market can help investors reap sizable gains. The following tips will help you remain worry-free when dealing with bear markets:

Long-Term Strategizing: Maintaining one’s composure when the stock prices seem to be falling may be a prudent decision. Investors operating with long-term goals in mind tend to be able to navigate such bear markets better than ones who make hasty decisions. While short-selling strategies may be profitable in a bear market, they are also extremely risky. Thus, long-term thinking can help give investors a moment of clarity in such ambiguous times.

Gradually Building Stock Positions: Similarly, attempting to time the market cycle’s lowest trough may be impractical. Instead, focusing on ventures with durable competitive advantages and building your stock positions over time may be more prudent and safe during such uncertain times.

Investing in Valuable Assets: Researching sectors or stocks that have survived previous bear markets may be handy for investors. This might help them locate valuable defensive stocks or assets for investment when navigating a bear market.

Conclusion

While both bear and bull markets are inescapable circumstances of the stock market, the former remains a genuine cause of concern for investors buying shares online. However, whether it be the dot-com bubble crash of 2000, the financial crash of 2008 or the COVID-19-induced stock market crash of 2020, the inevitable resolution of such market conditions is a given. The only caveat remains the time frames of such resolutions. The pitfalls of stock market trading during a bear market can be avoided if investors follow a well-rounded strategy, instead of making spur-of-the-moment decisions.

Related Articles:  Why is a Demat Account a must for 21st Century Investor | Evolution of Demat and Trading Account in India | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

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