Bull vs Bear Market
MBA, BSc, DipFP
Financial Planner / Managing Partner
Bull vs Bear Market & What Are They?
The stock market is always fluctuating and within the market, different shares rise and fall at different rates. But there are two types of share market shifts which refer to sustained, long term changes in the trend of the market – Bull and Bear Markets. So, Bull vs Bear Market, how do they differ and what does it mean for stock market investors?
A Bull Market
The term Bull Market refers to a market in which the price of shares has risen by 20% or more over the most recent low. As a rule, this type of market is seen when the economy is strong, and unemployment is low.
Typically, a Bull Market will last around two and a half years, although the most recent Bull Market lasted from 2009 to 2020. Stock prices will, on average, rise by around 112% over the course of a Bull Market.
The good news for investors is that a Bull Market is more common than a Bear Market, meaning stock prices trend upwards more frequently than downwards.
A Bear Market
A Bear Market is a market in which the price of shares has declined by 20% or more over a recent high. Usually, a Bear trend occurs in a slowing economy with increased unemployment, and it is often, but not always, accompanied by a recession.
While the longest and most severe Bear Market happened during the Great Depression, generally a Bear Market only lasts an average of 10 months, and recovery, or returning to the pre-Bear high, takes about two years.
Just because the market is moving up or down, doesn’t mean it’s heading into Bull or Bear territory. It could just be a ‘market correction.’ This is the term used for a short-term fluctuation in the market, of anywhere between 10-20%. A market correction does not necessarily lead to either a Bull or Bear Market, as these are normally the result of complex underlying economic conditions.
Not all stocks move enormously during a Bull or Bear Market. Some stocks, known as defensive stocks, remain relatively stable. These are generally blue-chip stocks such as utilities, and whilst often their returns are not huge, they are usually included in a well-balanced portfolio to protect against losses in a Bearish Market.
How much of your portfolio is defensive will depend on your appetite for risk, and what type of investor you are. Our articles on Passive vs Active Investing, Modern Portfolio Theory, and Portfolio Management might give you some ideas on how you want your investment portfolio to look.
Investing In A Bull Or Bear Market
Warren Buffett, one of the world’s most successful investors says, “time in the market beats market timing every time” and who are we to question the wisdom of Buffett? In fact, timing the market requires a great deal of skill and knowledge.
Broadly speaking, you will do best buying as soon as you notice the signs of a Bull Market and selling when you notice the start of a Bear Market. The trick is knowing whether the changes you are seeing are signs of a Bull or Bear, or whether they are simply market corrections.
What To Do if You Want To Invest
Unless you have the time and inclination to monitor the markets, not to mention the underlying economy, it’s usually best to rely on the experts. Finding a good Financial Advisor who can guide you will help ensure your investments make the most of market trends.
If you would like expert advice on when and how to invest in the stock market, Manly Financial Services have the experience and knowledge to help you. Give us a call on (02) 9976 3388 or contact us via the below link.Interested in knowing more?