The Sharemarket

What is a 'Bear' Market?
A bear market is a prolonged period of falling share prices (the opposite to a bull market), whereas in a bull market the bull is 'tossing the share prices up' and 'climbs the stairs slowly'. In contrast, the bear represents sellers who are clawing the share prices down and putting downward pressure on those share prices.

The bear is described as 'jumping out the window' signifying that share prices are declining in general at a faster rate than the share price increase.

The bear market is characterised by:

  • High inflation.
  • Rising interest rates.
  • Low growth.
  • Political instability.
  • Declining company earnings.
  • Little takeover activity.
  • Few traders in the market.

Bear markets tend to run for 1 – 2 years, which is much shorter than the bull market run. In general, bear markets are observed to fall from their peak during their full run by up to 40%. They can also be reflected by continuing large differences between the high price of the day and the low price. These prolonged periods of large differential between the two share prices indicate a bearish market.

Bear markets last for up to 2 years and most of the share prices decline in the first year, so you should be prepared for bargain basement prices of shares when the end of the bear market becomes evident. Make sure you have sufficient cash during the bear market.

The sharemarket always recovers from a downward trend in share prices, so there will always be a strong probability that as the bear market ends the bull market will start. The longer the bear market carries on, the greater the recovery will be.

What about Future Changes in the Sharemarket?
A large range of factors affects share prices, and therefore the sharemarket. These include interest rates, government policy changes or economic unrest. While the Sharemarket indicators provide a guide to what has happened, they are not always useful for predicting what is going to happen in the future.

No one has managed to devise a foolproof system for working out the future, but analysts can use historical data and calculations to try and predict future changes in the Sharemarket.

Be Smart about the Sharemarket
You may have no money to invest in the sharemarket, but this should not be a reason to remain ignorant. Whether we like it or not, what happens overseas in Wall Street affects the way we live. It’s a good idea to have some understanding of the sharemarkets, because it will pay dividends in the long run.

Safeguards on the Sharemarket
Several watchdog bodies have been established to protect investors from unscrupulous activities within companies who are offering shares or securities to the public for investment.

These watchdogs provide certain safeguards.