What is a Bear?

The term "bear" is used to describe a market condition in which prices are declining and investors are anticipating further decreases. This term is derived from the bear's habit of striking downward with its claws, and is often used to describe a bearish outlook or market sentiment. During a bear market, investor sentiment is generally pessimistic, and many investors may choose to sell off their assets to minimize losses. A bear market can be caused by a variety of factors, including economic conditions, regulatory changes, or general market uncertainty. However, it's worth noting that bear markets are a normal part of any financial market, and can provide opportunities for long-term investors to buy assets at discounted prices.

Simplified Example

Being a "bear" in investing can be compared to being a pessimist. Just as a pessimist might expect things to go wrong and believe that conditions are worsening, a bear in investing believes that the market or a particular security is going to go down and that prices will decrease. Just as a pessimist might avoid taking risks or making investments, a bear might sell their assets or avoid making new investments, trying to minimize their losses. Just as a pessimist might have a negative outlook on the future, a bear might believe that the market or a particular security is overvalued and that a correction is imminent. In short, being a bear in investing is like being a pessimist, with a belief that market prices or the value of a particular security will decrease.

History of the Term Bear

The term "bear," mentioned alongside "bull" in Thomas Mortimer's book "Every Man his own Broker" from 1769, referred to speculators at Jonathan's Coffee-House in London's Exchange Alley, the precursor to the city's stock exchange. A "bear" denoted individuals who sold government securities without actually owning them, aiming to repurchase them at a lower price before the settlement date. Similarly to the "bulls," "bears" traded on credit provided by stock-brokers during a specified account period, around two weeks. At the end of this period, all transactions had to be settled, and if a client incurred a net trading loss, they were obligated to pay the broker in cash. This trading practice on credit gradually phased out, notably around the 1980s in London, marking changes in market regulations and practices.

Examples

Jim Cramer: CNBC's Mad Money host is a well known crypto bear. Cramer has been a prominent figure in the financial media for many years, and is known for his energetic and often controversial opinions on the stock market and the economy. In addition to his work on "Mad Money," Cramer is a co-founder of TheStreet, Inc., a financial news and analysis website, and has written several books on investing and personal finance. Despite his popularity and influence, some investors and analysts question the accuracy of his predictions and the suitability of his advice for individual investors.

Bear season: The prolonged period of declining stock prices (usually by at least 20% or more over a minimum of two months). During a bear season, investor sentiment is generally pessimistic, and many investors may choose to sell off their assets in anticipation of further price decreases. This selling pressure can contribute to a self-reinforcing cycle, as declining prices lead to more selling and further price declines. Bear seasons can be caused by a variety of factors, including economic conditions, regulatory changes, or market saturation. However, they are a normal part of any financial market and can provide opportunities for long-term investors to buy assets at discounted prices.

The period from late 2017 to early 2019: when the prices of many cryptocurrencies, including Bitcoin, experienced a sharp decline after a period of rapid growth. During this time, the overall market sentiment was negative, and many investors who had bought into the market at high prices chose to sell their assets as prices continued to fall. This created a self-reinforcing cycle, as selling pressure drove prices down further, leading to more selling. The bear market of 2017-2019 was caused by a combination of factors, including increased regulatory scrutiny, market saturation, and a general cooling of investor excitement about the potential of cryptocurrencies. Despite the challenges of this bear market, many investors who held onto their assets during this period were able to benefit from the subsequent recovery of the crypto market.

Related terms

• Bear Trap: The term "bear trap" is used to describe a situation in which investors who are bearish, or expecting further declines in asset prices, are caught off guard by a sudden and unexpected reversal in the market.

• Prediction Market: A prediction market is a type of market that allows individuals to buy and sell contracts that pay out based on the outcome of a specific event.