(a) What is a bull market?
A bull market is defined by steadily rising prices.
The economy is thriving and companies are generally making a profit.
Most investors feel that this trend will continue for some time.
(b) What is a bear market?
By contrast a bear market is one where prices are dropping.
The economy is probably in a decline and many companies are experiencing difficulties.
Now the investors are pessimistic about the future profitability of the stock market.
Since investors’ attitudes tend to drive their willingness to buy or sell these trends normally perpetuate themselves until significant outside events intervene to cause a reversal of opinion.
2. Investing in a bull market
In a bull market the investor hopes to buy early and hold the stock until it has reached it’s high.
Obviously predicting the low and high is impossible.
Since most investors are “bullish” they make more money in the rising bull market.
They are willing to invest more money as the stock is rising and realize more profit.
3. Investing in a bear market
Investing in a bear market incurs the greatest possibility of losses because the trend in downward and there is no end in sight.
An investment strategy in this case might be short selling.
Short selling is selling a stock that you don’t own.
You can make arrangements with your broker to do this.
You will in effect be borrowing shares from your broker to sell in the hope of buying them back later when the price has dropped.
You will profit from the difference in the two prices.
Another strategy for a bear market would be buying defensive stocks.
These are stocks like utility companies that are not affected by the market downturn or companies that sell their products during all economic conditions.