Lions, Tigers, and Bear Market, Oh My

bear market

If you read much about the stock market, you have probably heard the terms bull and bear. But lots of folks don’t know exactly what they mean or where the terms come from. There are some references to the names stemming from the 1500s, with more recent usage and descriptions from the 17 and 1800s. Whatever the actual etymology, one thing is for sure. Bear markets describe a major loss in price. So here is your very own Bear Market Guide

The Bear Market

A bear market is a market that suffers a 20 percent or more loss from its peak, and that is just what happened in late December to the Nasdaq index. While some of the other big US indices are also down, like the Dow Jones, they haven’t sunk as far as the Nasdaq, rich with tech stocks like Microsoft and Apple. At least two other stock indices have entered bear territory, however: the Russel 2000 and the S & P 600, two indices of small and mid-cap stocks.

Pundits at the New York Times say in the last20 years there have been only two bear markets, one in 2000, the other in 2007, and most experts point that the Nasdaq is still far above its lowest point following the 2007 crash. Factoring in this recent dive, it is still 400 percent above that low.

How to Behave in a Bear Market

The answer depends on your investment goals. If your money is being socked away for retirement and that day is still far off, many experts would say to stay the course. Do nothing. Many people do the opposite, panicking and running for cover. While the instinct is understandable, it’s generally not the best action.

Instead, concentrate of building up cash, invest in good companies, and explore using the lower values to go bargain hunting. The volatility that accompanies bear markets can be an investor’s friend while it’s also possible to benefit from the principles of cost averaging. That is where you buy stocks or other assets no matter what the price, while they are increasing and while decreasing, making equal investments at regular intervals.

Those closer to retirement may choose to liquidate their stock holdings and invest elsewhere, where it looks a little safer. Something important to remember, though, is that bear markets are generally short-lived, lasting under 24 months. If you don’t need the money immediately, it may be best to leave it in the market or move it around a bit to another stock, mutual fund or other similar investment.