Introduction
Bull market refers to the sustained period of rising assets prices such as stocks, bonds, commodities etc. It is a financial market condition where stocks prices are rising or expected to rise. On the contrary, bear market is a condition where prices of stocks decline consistently over a time. In this post we are going to discuss major differences between bull market and bear market that may help to make right decision before makin investment.
Key Differences Between Bull Market And Bear Market
1. Meaning
Bull Market: It is a condition where stocks prices rise by 20 % or more
Bear Market: It is a financial market condition where assets prices fall by 20 % or more
2. Features
Bull Market: The main characteristics of bull market are:
* Asset prices rise constantly
* Indicates strong economic growth
* Increases marketing activities
* Increase confidence and optimism among investors
Bear Market: Key characteristics of bear market are:
* Stock prices decline constantly
* Decreased confidence and increased fear among investors
* Indicates economic weakness
* Reduces companies; earnings
3, Advantages
Bull Market: The main benefits of bull market are:
* High return potential
* Job creation opportunity
* Increased confidence among investors
* Easy for the companies to raise capital
Bear Market: The main advantages of bear markets are:
* Buying opportunity at discounted price
* Opportunity to rebalance portfolio by removing overvalued stocks
* Chance to make profits from short-term trading
4. Disadvantages
Bull Market: Some major drawbacks of bull market are:
* Possibility of overvaluation of stocks
* Prices are unpredictable due to volatility
* Difficult for beginners to start investing
* Overconfidence may lead to poor decisions
Bear Market: The main disadvantages of bear markets are:
* Investors face financial loss due to the reduction on portfolio value
* It increases market volatility
* It creates emotional pressure that may lead to stress and anxiety
* Because of economic slowdown consumer spending decreases
5. Investors Mood
Bull Market: Investors are confidence and optimistic due to the rising prices of stocks
Bear Market: Investors lack confidence and become pessimistic because of unfavorable condition
6. Economic Condition
Bull Market: It indicates strong economic condition
Bear Market: It indicates weak economic condition
7. Level Of Risk
Bull Market: It involves moderate level of risk
Bear Market: It involves high level of risk
8. Supply And Demand Of Stock
Bull Market: There is high demand and low supply of assets or stocks
Bear Market: There is low demand and high supply of securities
Bull Market Vs Bear Market (Comparison Table)
|
Basis |
Bull
Market |
Bear
Market |
|
Indicates |
Economic Growth |
Economic Weakness |
|
Asset Prices |
Increase |
Decrease |
|
Risk Involved |
Moderate |
High |
|
Investor’s Mood |
Optimistic |
Pessimistic |
|
Supply Of Stock |
Low |
High |
|
Demand Of Stock |
High |
Low |
Conclusion
Both bull market and bear market are temporary. So, you need to use different strategies in these two financial market conditions. In bull market, you should focus on growth stocks and try to avoid overvalued stocks. In bear market, it is better to make investment in dividend paying stocks and rebalancing the portfolio.
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