Bull and Bear Markets, Explained Simply

A bull market is a period, often lasting years, when share prices rise broadly. Company profits are usually growing, the economy is doing reasonably well, and investors are optimistic. New investors join, and news is mostly positive.

The name is said to come from the way a bull attacks, thrusting its horns upward.

A bear market is a period when prices fall a lot and stay low for some time. A common rule of thumb is a fall of about 20 percent or more from a recent peak in a broad index. Fear spreads, news turns negative, and many investors sell.

The name is said to come from the way a bear swipes its paws downward.

A correction is a smaller fall, often around 10 percent from a recent peak, that happens within a rising market. Corrections are frequent and usually shorter than bear markets.

They often feel scary at the time, but many are forgotten within months. Our page on what to do when the market falls explains how to respond.

Sometimes the market neither rises nor falls much for a long time. Prices move up and down within a range. These phases can test patience more than sharp falls, because nothing seems to happen.

For SIP investors, sideways phases quietly add units at similar prices, which can help when the market eventually moves up.

Rising markets are usually supported by growing company profits, low or falling interest rates, and confidence. Falling markets are often triggered by slowdowns, financial crises, global shocks, sharp interest rate rises or very high valuations.

Often, the cause of a fall is only clear in hindsight. Our page on the Nifty PE ratio explains how valuations can play a role.

Historically, rising phases have tended to last longer than falling phases, and the gains in rising phases have been larger than the losses in falling ones. That is why patient long-term investors have generally done well.

But no one can predict when a phase will start or end. Past patterns may not repeat in the same way.

To time the market, you need to sell before the fall and buy back before the recovery. Getting both right, repeatedly, is extremely hard. Many of the best days in markets come soon after the worst days, so people who sell in fear often miss the rebound.

Our page on the best time to start a SIP explains why steady investing usually works better.

Keep your SIPs running. Avoid getting carried away and putting large lump sums into the hottest funds. Check that your equity share has not grown far beyond your plan, and rebalance if needed.

Our page on portfolio rebalancing explains how.

Keep your SIPs running. Each instalment now buys more units at lower prices. If you have spare money and a long time frame, falling markets can be a chance to add gradually.

Do not sell long-term holdings in a panic. A fall becomes a permanent loss only if you sell. Our post on what the 2020 crash taught SIP investors shows how this played out.

A bear market is painful but mostly harmless for goals that are many years away. It is dangerous for money you need soon. That is why money for near goals should be moved to steadier funds well before the goal date.

Our page on short-term investment options explains where to keep near-term money.

A mix of equity, debt and gold usually falls less than pure equity in a bear market. Debt and gold often hold steady or rise when shares fall.

Our page on asset allocation explains how to set a mix that you can stick with.

Many people sell in bear markets not because they want to, but because they need cash for an emergency. A separate buffer prevents that.

Our page on building an emergency fund explains how much to keep.

In rising markets, people feel greedy and fear missing out. In falling markets, they feel afraid and want to get out. Both feelings push people to do the wrong thing at the wrong time.

A simple, automatic plan protects you from your own emotions. Our page on common mistakes lists the traps.

News channels treat every daily move as big news. For long-term investors, one day or one week tells you almost nothing. Checking your portfolio less often usually means fewer bad decisions.

Our page on how to track your portfolio suggests a sensible checking routine.

Before the next big fall, decide in writing what you will do: keep SIPs running, not sell long-term holdings, and add a little extra only if your buffer is safe. When the fall comes, follow the note instead of the news. It sounds simple, but having a plan made in calm times is one of the best defences against panic.

• Bull market: a long rise. Bear market: a deep fall.
• Correction: a smaller dip within a rise.
• Both are normal and both have always ended.
• Keep SIPs running, rebalance, and keep a buffer.

We are distributors rather than investment advisers and we recommend no schemes. If market swings are making you nervous, get in touch.