A bear market is a period in which asset prices fall for a sustained period of time, and general economic conditions are unfavorable.
Bear markets are notoriously difficult to predict and avoid, but timing is everything. There is no one-size-fits-all approach to bear markets, and each one is unique in terms of its triggers, timing, and recoveries.
However, there are some commonalities, such as certain patterns and cycles.
Avoiding bear markets altogether is difficult, but if you are aware of the risks and the warning signs, you may be able to take action to protect your investments; however, they can also present opportunities for long-term investors.
You may miss out on possible profits if you sell too early during a bear market. In fact, the typical equities investor has lost about the same amount in the first three months of a bear market as they would have received in the concluding months of a bull market.
So, selling too early in a bull market is the same as selling after the start of a bear market. That is because investors lose about the same amount of money in the early stages of a bear market as they would have made in the late stages of a bull market.
When a market is in a bear phase, it is characterized by increased uncertainty and decreased investor confidence. As a result, market volatility rises as investors become more cautious about committing to long-term investments. At the same time, when demand falls, prices tend to fall.
It might be difficult to tell when a bear market has ended since prices seldom show a consistent and clear rebound. Instead, after a bear market, market volatility may grow, followed by a quick rebound that may not continue. That makes it difficult for experts to determine whether the bear market has finished in real-time.
Take Japan’s bear market in 1990 as an example