BY: Orefuwa Adebowale
Many investors get frightened at the sound of a “bear market” because of the general fact known to every bear market which is a drop in the value of their portfolio. But in the actual sense, a bear session cannot be avoided in the stock market. Bear market are known to provide good investment opportunities in the stock market but usually to patient investors.
What is a bear market?
A bear market is period of prolonged fall in investment prices in the stock market over a period of time. When a the broad market index falls by 20% or more from its recent highs for over two months is a threshold of a bear market. There can be a bear market for a market as a whole such as the Nigerian Stock All Share Index and also for individual stocks.
During a bear market, many investors get to practice panic sale of the stocks in their portfolio and ignore any good news, these actions tend to push the price of the market lower. Although while investors go bearish on an individual stock, that sentiment may not affect the entire market index; but when the entire market index goes bearish it affect almost all stock within it despite any positive news or reports the individual stocks are giving to the public.
Duration of a bear market
A bear market comes and goes but investors are always interested to know the duration of its existence in the market because a good investor cares about a perfect investment entry period in the market so as to avoid buying the wrong time.
There are a lot of factors investors observe to determine how slow an economy is drifting. Some of the key points that are being observed are inflation rate, interest rate, wages growth, political interventions and hiring.
How long a bear session would last in the market of individual stocks or the entire market index can be determined by the positive turnarounds spotted in the fundamental and technical analysis of either the individual stock or the entire market index.
Causes of a bear market
The general causes of a bear market include
- Geopolitical crises
- Slowing economic growth
- Fiscal policies
- Public health crises
Benefits of bear market
- Creates opportunities to buy the dip at a cheaper price: The bear market is generally known to create a dip in the market by the prolonged fall in the prices of the market index or individual stocks. The dip in turn creates opportunities for investors to buy the shares of various stocks at less expensive prices other from its precious high prices. Also, investors buying stocks in a dip will not only open them to the opportunity of buying at a cheaper price but will also open them to the opportunity of acquiring more units of shares of the stock been purchased.
- Helps investors to diversify their portfolios: During a bear session in the market is a good time for investors to diversify their portfolio, knowing fully well that diversification of portfolio helps to increase the chances of making more profits in stock market investment. With the ability of some stocks to recover from a bear market shows how reliable their growth will be and information like this can be used by investors to pick which stocks can be used to diversify their portfolios.