In this series, we demystify investing terms for beginners.
Previously, we explored what a blue-chip stock means. Now, let’s find out what a bear market is.
So, what is a bear market?
There’s no official definition for this, but a bear market occurs when the stock market falls 20% or more from its most recent high.
During the great financial crisis of 2007 to 2009, the Straits Times Index fell around 60% from its most recent peak. That’s certainly a bear market.
“Why bear, and not another animal?”, I can hear you asking.
Bears swipe their paws down when attacking their prey, and that imagery has become symbolic of the huge downward movement during a crash.
On top of using a percentage, investors can also find out if they are in a bear market by having a sense of market sentiments.
During a bear market, pessimism prevails. Investors tend to bail out during such a market and that sends the market even lower.
Any good news tends to be chucked aside, and markets continue to tank, seemingly without any respite in sight.
But there will come a point when investors think the market has gone too far down, and things are not that bad after all.
As sentiments slowly improve, it gradually brings about the start of a bull market, which is the opposite of a bear market. We will explore the bull market in another article.
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