Bear Market

A bear market is when the stock market falls for a prolonged period of time, usually by twenty percent or more. It is the opposite of a bull market. This sharp decline in stock prices is normally due to a decrease in corporate profits, or a correction of overvaluation (i.e., stocks were too expensive and fell to more reasonable levels).

A bear market is described as being accompanied by widespread pessimism. Investors anticipating further losses are motivated to sell, with negative sentiment feeding on itself in a vicious circle. The most famous bear market in history was after the Wall Street Crash of 1929 and lasted from 1930 to 1932, marking the start of the Great Depression. A milder, low-level long-term bear market occurred from about 1973 to 1982, encompassing the stagflation economy, energy crises in the 1970s, and high unemployment in the early 1980s.

Generally, a bear market will cause the securities you already own to drop in price. The decline in their value may be sudden, or it may be prolonged over the course of time, but the end result is the same: the quoted value of your holdings is lower. This leads to two fundamental principles:
1. A bear market is only bad if you plan on selling your stock or need your money immediately.
2. Falling stock prices and depressed markets are the friend of the long-term, value investor.