A bear market occurs when a market experiences prolonged price declines, typically defined as a drop of 20% or more from recent highs. This financial term originates from the way bears attack their prey – by swiping their paws downward.

In contrast to bull markets (characterized by rising prices), bear markets reflect widespread pessimism and negative investor sentiment. During these periods, most investors expect further losses, leading to a self-reinforcing cycle of selling.

Key Characteristics of Bear Markets:

• Sustained price declines (20%+ from recent peaks)
• Negative investor sentiment
• Decreased trading volume
• Higher market volatility
• Economic slowdown or recession

Common Causes:

• Economic recessions
• Global pandemics (like COVID-19)
• Financial crises
• Major geopolitical events
• Structural market changes

The Most Recent Bear Market (2020):

• Duration: February 2020 to March 2020
• Trigger: COVID-19 pandemic
• Impact: S&P 500 fell 34% from peak
• Recovery: Markets reached new highs by August 2020, aided by government stimulus

Contrarian Investing During Bear Markets:

• Buy when others are fearful
• Focus on fundamentally strong companies
• Maintain a long-term perspective
• Historical success examples:
  • 2008/2009 Financial Crisis
  • 2020 Pandemic Market Crash

Crypto markets experience their own bear markets, often with more extreme price swings than traditional markets. Bitcoin, for example, has historically seen several 80%+ drawdowns followed by new all-time highs.

While bear markets can be challenging, they often present opportunities for long-term investors to acquire assets at discounted prices. The key is maintaining a disciplined investment strategy and understanding that markets move in cycles.

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