Bull market vs bear market
One is a sustained rise, the other a sustained fall — and in both the emotional signal points the wrong way. Here's what the terms mean, what actually changes about the businesses underneath, and what to do about it.
The definitions
A bull market is a sustained period of rising prices — conventionally used once a market has risen 20% from a low. A bear market is the reverse: a fall of 20% or more from a recent high. A drop of 10% is usually called a correction, which is a different and much more common thing.
The 20% threshold is a convention, not a law of nature. Nobody rings a bell.
What they actually feel like
In a bull market
Everything you buy seems to work. Confidence gets mistaken for skill, risk feels theoretical, and the people making the most noise are those taking the most risk. This is when the seeds of the next bad decade get planted.
In a bear market
Every purchase looks immediately wrong. Sensible analysis feels useless, and the argument for selling gets more persuasive the further prices fall. This is when the best long-run purchases are available, and almost nobody wants them.
The uncomfortable pattern: the emotional signal points the wrong way in both directions.
How long they last
Historically bull markets have run considerably longer than bear markets, and have recovered more than the preceding falls took away — which is why long-run equity returns are positive despite regular declines. Bear markets tend to be shorter and sharper. None of that guarantees the next one behaves the same way, and some markets have taken many years to recover previous highs.
What actually changes, and what doesn't
In a bear market, prices fall. What a business is worth — the cash it will produce over its life — usually changes far less, and sometimes not at all. That gap is the entire opportunity, and it's why margin of safety widens most exactly when it feels most dangerous to use it.
Sometimes the fall is right: earnings really are lower, and the business really is worth less. Telling those two cases apart is the work. See why markets fall for the four causes and which of them matters.
What to do about them
Don't try to time the turn
Bull and bear markets are only identifiable in hindsight. Waiting for confirmation means missing the recovery, since the sharpest rebounds usually happen while the news is still bad.
Decide your numbers in advance
If you know what you think a company is worth before prices fall, a 25% decline is arithmetic rather than emotion. If you don't, it's pure feeling — and feeling has no good decision in it.
Keep contributing
Monthly investing through a decline buys more units at lower prices. It's the closest thing to an automatic advantage available to an ordinary investor.
Check the debt
In a downturn, companies don't usually die from lower profits — they die from refinancing at the wrong moment. See debt to equity.
Know your number before the next fall
Oak Growth estimates what roughly 1,000 companies are worth and shows the gap against today's price — so a market decline becomes arithmetic instead of a guess.
Explore Oak GrowthCommon questions
What is a bull market and a bear market?
A bull market is a sustained rise in prices, conventionally marked once a market is 20% above a recent low. A bear market is a fall of 20% or more from a recent high. A decline of around 10% is usually called a correction instead.
How long do bear markets last?
Historically they have been shorter than bull markets, though some have taken years to recover previous highs. Frequency and duration from the past are context rather than forecast, and no individual company is guaranteed to recover simply because an index historically has.
Should you buy during a bear market?
Falling prices widen the discount on businesses whose earnings power is unchanged, which is where long-run opportunity comes from. The difficulty is that some falls are justified because earnings really have deteriorated, and telling those apart requires valuing the business rather than reacting to the price.
How do you know when a bear market is over?
Only afterwards. Turning points are identified in hindsight, and the sharpest recoveries have historically begun while the news was still bad — which is why waiting for confirmation usually means missing the first and largest part of the rebound.
Also see: Why is the stock market falling? → · Margin of safety → · What is a value trap? →