Saying ‘Bears and Bulls’ in the voice of Shuri in Black Panther sounds like some wild animal fight. Hehe, but in the stock market, Bull markets (also known as Bull Run) occur when prices are on the rise for sustained periods, and Bear markets occur when stock prices fall 20% or more for a sustained period. Simple enough, yes?
On a simple note, the following analogy can help you remember the difference: A bull has horns that are most often pointing upwards, and you can relate that to rising stock prices. A Bear on the other hand, when not threateningly on two feet, is often facing downwards on its four paws. You can relate that to falling stock prices. It is not a perfect analogy, but it could work to help you remember the differences.
The financial market is greatly influenced by investor confidence – how investors perceive and react to the market affects whether the market will rise or fall.
In bull markets when prices are rising, it shows that investors’ confidence is rising as well. Bull markets often occur in times of economic prosperity, thriving companies, and high levels of employment. Investors are confident that there will continue to be an upward trend, this results in more consumers holding onto their shares, high stock prices and a low supply of equities to be bought resulting in a buyers’ market.
Bear markets are just the opposite, as they occur when stock prices fall 20% or more for a sustained period. It is often seen in periods of economic downturn and high levels of unemployment. Bear markets are fueled by fear, leading to an increased desire by investors to sell, increased availability of equities, low prices, and therefore a sellers’ market.
To further elucidate, let’s explore some examples.
The Great Depression was a severe worldwide economic depression between 1929 and 1939 that began after a major fall in stock prices in the United States. The 1929 stock market crash resulted in an almost 90% loss in the value of stock prices.
The bull run of the US stock market that lasted from 2009 to 2019 is one of the longest in recent history with the value of stock prices rising by more than 323%, this was of course just before COVID-19 hit the entire world like a brick in the face.
In a bull market, many investors wish to buy securities, but few are willing to sell them. One way to gain from a bull market is to invest early when stock prices are low and sell before they reach their peak. When you have a high and diverse number of equities on hand in a bull market, you stand a higher chance to benefit.
In a bear market, when prices continually fall, investors flee to the safety of fixed-income securities. Investing in equities at this time is a risk that can result in a massive ‘breakfast’, and you don’t want to get served. Although prices are low and readily available to be bought, it’s difficult to determine with any certainty if and when they will rise. Parthian Securities daily newsletters help you keep track of the rise and fall in the market and how you can benefit from them. Click here to subscribe.
Investing in equities, in any type of market, is a risk that can often be rewarding but can also be the opposite of that. It is safest to trust a professional with your investments. Parthian Securities Limited is a leading and trusted financial securities company that deals in various financial markets, investment advisory services, research on securities and companies, and other value-added services.
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