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Personal Wealth and Finance

Bear Market Duration

October 1, 2020

Bull markets are periods of rising capital valuations that generally create increased wealth for investors in the equity markets. Bear markets work to conversely decrease gains in equity investments for a limited but unknown period of time.

Investors have just experienced a bear market, caused by the fear of the health risks associated with the coronavirus pandemic complicated by media bias, fake news; plus, rising costs and fewer stable jobs.

Financial analysts generally believe bear markets occur when the stock markets are down at least 20% from recent highs. The shape of the market recovery correlates to the duration of when this bear market period, which we now experience, will end.

Generally, the simple view is that bear markets end when the primary market indices are no longer down 20% from their highest valuation. Others insist that it ends when stocks are not just fully recovered to their highest valuation, but go on to see the stock markets rise to all-time new highs.

The latter definition is the most hopeful, often occurring over time when a new bull market experiences rising capital value exceeding the historic high value of a particular market. This definitely happened during the long bull run after the 2007-8 sub-prime mortgage crisis. Investors who stayed invested, saw their wealth return and dramatically increase. Investors who view market fear as a buyer’s advantage, often buy when prices are lower, thus adding to their gains on the rebound.

The billionaire investor, Warren Buffett, compared fear and greed to ‘super-contagious diseases’ and ‘epidemics.’ Investors are quoting him to keep calm as coronavirus ravages markets. He described fear and greed as diseases that infect investors in a shareholder letter in 1986. His famous quote has stood the test of time:

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful” – Warren Buffet

Certainly, stock market sentiment affects our investments and can exhibit all sorts of patterns while we recover from bear market low points. We’ll keep a close eye on investments as we move forward watching market valuations in all sectors.

Source: Investopedia; MarketWatch


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