How to become a bear market investor (2023)

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You probably panic when you hear the bear market like most investors do. But what if you could be a successful investor in a bear market?

With the right investment strategy and support, this is possible. All financial markets have ups and downs; You need to understand how they work, how to read past performance, and how to stay invested, which will help you better navigate bear markets.

Here's everything you need to know about investing during a bear market.

How to become a bear market investor (1)

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Define the bear market

A bear market occurs when asset prices fall sharply. By definition, bear markets occur when theMarket decline is 20% or morethan its previous state. A bear market can occur for a stock or for the entire stock market.

Bear markets may look bad, but they are part of the economic cycle and must be understood. Also, bear markets usually offer great investment opportunities if you know how to use bear market investing strategies and get the most out of your portfolio.

Fases do bear market

The bear market has four phases:

1. High prices

In the first phase of the bear market, asset prices are high and many investors have a good feeling about the market. When the first phase ends, investor sentiment changes as they change their investment strategy and sell their assets.

2. Drop in stock prices

During this phase, stock prices fall sharply and trading slows down. In addition, the threat of economic recession is starting and investors are feeling pressure to sell their assets.

3. Speculators enter the market

In this phase, speculators enter the market and increase trading activity. This causes some stock prices to rise

4. The stock price is slowly falling

In the final phase, stock prices still fall, but not as fast. Investors are starting to be more optimistic amid the market downturn and anticipating a bull market is around the corner.

Causes of the bear market

The causes of bear markets aren't always something investors can pinpoint, but most often they stem from economic downturns.

Experienced traders carefully monitor economic indicators to watch for looming problems. For example, you look at unemployment rates, wage growth and interest rates. They watch out for when companies are tightening, and many investors use this time to sell assets in anticipation of bearish markets.

When investors sell their investments, the market downturn begins. The more stocks are sold, the more the market falls.

Real example of the bear market

The dot-com bubble of 2000 is a good example of a real bear market. It all started in the 1990s with a dramatic rise in technology stock valuations in anticipation of the rise of Internet-based companies.

The NASDAQ rose 4,000 points between 1995 and 2000, but the bubble burst and the stock market plummeted in 2001 and 2002. The NASDAQ was down 4,000 points at the time, and almost every dot-com stock went bust. Many tech stocks also suffered, and it took 15 years for the stock market to recover.

How long can bear markets last?

Bear markets usually last almost a year. The average bear market lasts 289 days while the average bull market lasts 991 days. Even in the worst of times, bear markets average 36% losses, while bull markets average 114% gains.

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How to become a bear market investor

To become a bear market investor, you must decide on a long-term investment strategy. No market is created overnight, and bull and bear markets eventually change. The key is not chasing after your portfolios and making emotional investments. Instead, focus on long-term success and use these tips.

Invest regularly

To invest during a bear market, commit to investing regularly. Bear market dips don't just last a few days; they last almost a year. So don't focus too much on stock prices or determine if/when they will be priced lower. Instead, invest whenever you can and use the average dollar cost to your advantage.

Think long term

The most important thing is to think long-term during a bear market. Don't assume that's it and you should go now. Statistics show that bear markets are changing. If you are in bear market territory, there will likely be a bull market around the corner, depending on how long the market has been a bear market. You don't invest for tomorrow; Instead, you're investing in long-term goals, so let your money sit.

Diversification during a bear market

Most importantly, in any market, especially a bear market, you need to have a diversified portfolio. That means you split your money between stocks, bonds, and other investments.


Invest part of your capital in the stock market, but be careful to diversify your investments. Select stocks from different sectors and include common and dividend stocks. Even if market risk is high, companies that perform well still pay dividends to their shareholders.


Balance your portfolio with conservative bonds. Bonds offset the risk of the stock market. While you don't want to invest all your money in bonds because the yield isn't high enough, it can offset the losses you might incur during a bear market. So invest your money in bonds and stocks to balance your risk.

Invest in well-performing sectors

Regardless of the state of the economy, focus your investments on the sectors that people need. Food, gas, supplies and clothing are necessary, as is health. Invest in the industries that are less likely to be affected by such dramatic market declines.

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long-term resilience

Long-term resilience is crucial. Do not give up. Yes, it's discouraging to see market swings and your portfolio decline, but market history shows that there's always a new bull market coming.

Working with a financial advisor or financial planner during a bear market

When working with a financial advisor during a bear market, it's important to clarify your intentions. First, find a financial advisor with the same values ‚Äč‚Äčand theories as you so you're both on the same page.

Then follow the advisor's lead as you discuss your investments, market timing and how to play the stock market in bear and bull markets. Finally, find an advisor you trust and who has experience in both bull and bear markets for the most profitable advice.

Frequently asked questions about investing during the bear market

What are the signs a bear market is coming?

A sharp drop in the stock market is the most common sign that a bear market is imminent. You might notice several stocks falling or hear on the news that an entire index has suffered a dramatic loss overnight. Another good indicator is falling interest rates. When the Federal Reserve cuts interest rates, it's usually a sign that a recession is imminent.

How do you sell short in a bear market?

To short stocks in a bear market, you borrow stocks when they are at high prices and sell them for a profit. When prices fall, you hope that the bear market will buy back the stock and return it to the lender.

Is there a difference between bear markets and market corrections?

Market corrections mean that the market corrects in the short term, usually a few months. As a result, there is no endless price drop. Instead, it's a quick turnaround to fix the problem rather than panicking all investors.

What is a put and inverse ETF in bear market investing?

A put option allows sellers to sell stock at a specific price. However, they are not required to do so, and if they are not exercised by the expiration date, the put option will expire, causing the investor to lose the premium paid for the option.

Inverse ETFs work in the opposite way to standard ETFs. Instead of tracking or mimicking the market, inverse ETFs do the opposite of what the market does.

What is the difference between a bear market and a bull market?

It is important to understand the bear market versus the bull market in order to invest properly. Stock prices rise dramatically in a bull market and fall in a bear market. But like bear markets, bull markets occur when most stock prices rise at least 20%.

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Should You Invest During a Bear Market: Final Thoughts

Bear markets can be scary, but knowing how to be a bear market investor is key to long-term success. Bear markets last less than a year and have an average loss of 33%. While it can be shocking to see your portfolios change so much in a short amount of time, it doesn't last forever and by managing your risk tolerance, you can use the bear market to your advantage.


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Author: Neely Ledner

Last Updated: 02/10/2023

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