Bull and bear market are the terms used in the context of stock markets, both the terms can be compared with summer and winter just as both the weather keep coming and going alternatively in the same way both bull and bear market keep coming and going in stock market although summer and winter come every year but it is not necessary that bull and bear market will come every year. In order to understand both the term let’s look at some of the differences between bull and bear market –
- Bull market refers to that market in which the prices of stocks are rising and also the stock market index is making new high after every correction whereas in case of bear market the prices of stocks are declining and the stock market index is making new low after every short term rally.
- Bull market is characterized by optimism among general public, plenty of new IPO and there is wide scale buying and trading by traders and investors leading to huge volumes of transactions happening in market whereas bear market is characterized by pessimism among general public, lack of public offerings by new companies and low volume of transaction as there is no interest among trader or investor to trade or invest in the market.
- In case of bull market there is trend of good news coming from both economy as well as companies which leads to further rise in price of stocks and market whereas in case of bear market there is trend of bad news coming both from economy as well as individual companies leading to further decline in price of stocks and market.
- In case of bull market there is so much optimism that every second person talks like he or she is expert in stock market and wherever one goes whether at party or park or office one will hear about stock market and people do not want to invest anywhere but stock market whereas in case of bear market exact opposite happens and there is so much pessimism that nobody wants to talk about stock market and everybody invest in all asset classes like bonds, fixed deposits, real estate, gold but no one is willing to put a penny into stocks.
- Bull market start with a gradual rise in prices and ends with mindless buying by investors leading to euphoria in the stock market which leads to companies valuations reaching unsustainable levels which in turn leads to crash in the stock market. Bear market start where bull market ends as at the start investors are hopeful that prices will climb up and gradually they start giving up and start selling which turns into mindless selling leading to further decline in prices which in turn makes companies valuations very attractive.
As one can see from the above there are many differences between bull and bear market, however if you are an investor and not greedy then both bull and bear market provides you an opportunity as in bull market one can sell his or her stock holdings at good profit whereas in case of bear market one can buy good blue chip companies at attractive valuations.