Business, Legal & Accounting Glossary
Bearish refers to the investor feeling that a certain security or sector or an entire market is going to fall. A bearish investor expects stocks markets to go down. Hence he treads cautiously. A bear market typically exhibits falling stock prices. Bearish sentiment may prevail in any kind of market including bond market, commodity market and the stock market. The opposite of a bearish market is a bullish market.
A bearish market can spell trouble for investors as well as for the general public. Since a gloomy and suppressed financial market, in the long run, may lead to an economic depression. A bear market is characterized by pessimism among investors. They become conservative, hoard portfolios and indulge in cautious investment decisions. This pushes financial markets further down.
In a bear market investors sell off stocks in a hope to salvage as much returns as they can. Mass stock sales lead to a general panic in financial markets. Some investors engage in short selling in a bear market. Short selling is regarded as a risky investment process. Here investors sell off borrowed stocks in a hope to buy back those later at lower prices. Gain arises from the price difference. However, this strategy can misfire if market movements do not conform to one’s expectations. A bear market is different from a ‘correction’, which is a short term affair. A typical bear market downturn often comes in with high unemployment rates and rising inflation figures for a country.
Investment in bear markets involves a lot of careful groundwork. Investors need to search for ‘stable companies’. These are companies which are to stay around in the long run. Stable companies produce essentials ( goods and services which are in constant demand). Companies dealing in cleaning and hygiene products are often considered to be stable companies. These stocks may decline in short-run (due to negative market sentiments) but will normally rise in the long run.
Bear market investors also need to possess a diversified portfolio, which includes options, cash, stocks and annuities. Some investors also prefer gold as an investment option due to their inherent value.
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This glossary post was last updated: 26th March, 2020 | 1 Views.