A Bear investor is someone who is pessimistic and expects shares and asset values to fall.
A Bear market is when the overall market sentiment is negative and there are more pessimists than optimists. In a bear market falling share prices are likely to become a self fulfilling prophecy. Because people expect shares to fall, they are likely to sell (and in extreme circumstances sell futures options they don’t even have). Therefore, this negative sentiment causes prices to fall. As prices fall more investors may take a ‘bearish’ sentiment. A bear Market can end when people feel that shares now offer very good value.
How Long does a Bear market Last?
It depends on many different factors. The longest bear market in history started with the Wall Street crash of 1929 and went on for several years. In this circumstance the bearish sentiment made a recovery difficult.
However, some bear markets can be much shorter. For example in the October 1987 crash, the share prices fell 25% in one week but then gradually recovered
What Causes A Bear market?
- Poor economic data which suggests a slowdown in economic growth.
- Uncertainty on a political or economic front.
- Realisation prices are overvalued (Bear Markets often follow asset bubbles where prices become divorced from reality)
- Irrational low confidence amongst investors.