Investment Tips: What Is A Bear Market?

Bear market is a financial term used to describe a sustained declined in market value over time. Tips included for forecasting and investing during an economic recession or depression.

When the stock market is in a sustained downturn and consumer confidence is low, it is said that a bear market exists. This downturn is defined by when the value of the Dow Jones Industrial, Standard & Poor's 500 and the NASDAQ drop by 20% of their overall value. This bear market, as it is called, can lead to economic recession or depression, depending on how low the value gets and how long the trend lasts.

The causes of a bear market are as diverse as those who make the investment decisions. Job loss, lack of consumer spending, investor psychology, and low levels of product development or manufacturing can all lead to a bear market. The case that exists is that investors and the general public no longer have faith in the market.

Bearish investors are also partially responsible for a bear market. When the value of stocks, securities and currencies decline, investors will diversify their portfolios and move their higher risk investments into lower return, more stable, options. Many will outright sell their options. This cycle causes the market to further decline. If the experienced investors are observed avoiding the marketplace, the layperson will also surely avoid it and the entire system will stagnate.

The worst bear market in history was obviously the Great Depression. Others have been in the 70's and more recently in the late 90's with the "bust" of several internet companies. As a matter of fact, the United States economy is currently in a bear market.

When considering how to invest during a bear market, the end investor has to do a lot of homework. The best path the successful bear investing needs to look for stable companies that are going to be around for several years into the future. It is important, however, to separate the stock of a company from the company itself. A stable company is one that provides goods and services that are always going to be needed. This is why so many of the best stock options are the ones related to companies that provide hygiene and cleaning products. However, due to investor psychology, even the best stocks can dip for a while, but over the long term will become stable and rise again.

The number one rule in investing is to diversify. With a portfolio that covers many options, stocks, annuities, and cash, if the market falls, the cash or hard currency part of a portfolio will remain stable. Many investors have turned to gold and precious metals for this very reason. These are items that are not "backed" by anything except their own value.

Finally, it is worth mentioning the history behind why a bear market is called a bear market. This expression is thought to have originated in Canada. Fur sellers would confirm the sale of their furs and collect their pay, before they even had any furs to sell. They would then go and get the furs hoping the price would drop so that they could buy at a lower price. They would have an instant profit and when continue this practice over and over. These fur sellers were called "bearskin jobbers". Bearish traders today do the same thing.

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