2.22What is a bear market?
1What is it?
A bear market is a long period when prices are falling and investors are fearful. A common rule of thumb is a fall of 20% or more from a recent high.
2Why does it exist?
Bears attack by swiping their paws downward.
3Stock market example
In March 2020, the Nifty fell about 38% from its January high in a few weeks. In 2008, during the global financial crisis, it fell more than 50%.
4Diagram
5Risks
- Panic selling locks in losses.
- Bear markets can last months or years.
6Practical use
Long-term investors with a plan sometimes see bear markets as a chance to buy good companies cheaply. But nobody can predict exactly when a bear market ends.
7Quick revision
- Bear market = long fall in prices.
- Lower highs and lower lows.
- Panic selling is the biggest mistake.
8Knowledge check
Q1. What % fall is a common rule of thumb for a bear market?Show answer
20% or more from a recent high.
Q2. Roughly how much did the Nifty fall in early 2020?Show answer
About 38% from its January 2020 high to its March 2020 low.
Q3. What is a common beginner mistake in bear markets?Show answer
Panic selling.