Bear

Loading the player...

What is a 'Bear'

A bear is an investor who believes that a particular security or market is headed downward and attempts to profit from a decline in prices. Bears are generally pessimistic about the state of a given market. For example, if an investor were bearish on the Standard & Poor's (S&P) 500, he would attempt to profit from a decline in the broad market index.

BREAKING DOWN 'Bear'

Bearish sentiment can be applied to all types of markets, including commodity markets, stock markets and the bond market. Although it is said that the stock market is in a constant state of flux as the bears and their optimistic counterparts, "bulls," try to take control, over the past 100 years or so, the U.S. stock market has increased an average 10% per year. This means that every single long-term market bear has lost money.

Bear Behaviors

As they are pessimistic about the direction of the market, bears utilize various techniques that, unlike traditional investing strategies, profit when the market falls and lose money when it rises. The most common of these techniques is known as short selling. This strategy represents the inverse of the traditional buy-low-sell-high mentality of investing. Short sellers buy low and sell high, but in reverse order, selling first and buying later once -- they hope -- the price has declined.

Short selling is made possible by borrowing shares from a broker to sell. After receiving the proceeds from the sale, the short seller still owes the broker the number of shares he borrowed. His objective, then, is to replenish them at a later date and for a lower price, enabling him to pocket the difference as profit. Compared to traditional investing, short selling is fraught with greater risk. In a traditional investment, because the price of a security can only fall to zero, the investor can only lose the amount he invested. With short selling, the price can theoretically rise to infinity. Therefore, no limit exists on the amount a short seller stands to lose.

Famous Bears

Certain high-profile investors have become famous for their persistent bearish sentiment. Peter Schiff is one such investor known in Wall Street circles as the quintessential bear. A stockbroker and author of several books on investing, Schiff evinces unwavering pessimism on paper investments, such as stocks, and prefers those with intrinsic value, such as gold and commodities. Schiff garnered accolades for his prescience in predicting the Great Recession of 2007-2009 when, in August 2006, he compared the U.S. economy to the Titanic. It should be noted, however, that Schiff, throughout his career, has made many doom-and-gloom predictions that never came to fruition.

RELATED TERMS
  1. Bear Position

    Alternate term for a short position in a financial security. ...
  2. Bear Closing

    Purchasing a security, currency, or commodity in order to close ...
  3. Jacob Schiff

    A banker and philanthropist who directed the National City Bank ...
  4. Bear Fund

    A mutual fund designed to provide higher returns when the market ...
  5. Bull

    An investor who thinks the market, a specific security or an ...
  6. Covered Bear

    A trading strategy in which a short sale is made on a long position. ...
Related Articles
  1. Trading

    Digging Deeper Into Bull And Bear Markets

    Discover why it's important to know the characteristics of the two types of market conditions.
  2. ETFs & Mutual Funds

    Bear Funds: A Bullish Stance On Bad Times

    Even if the market is in a decline your portfolio doesn't have to be.
  3. Managing Wealth

    Prospering In The Next Bear Market: Here's How

    Prepare to survive, and even prosper, in the impending bear market, by considering and putting into action the following four strategies.
  4. Markets

    Profiting In Bear And Bull Markets

    There are many ways to profit in both bear and bull markets. The key to success is using the tools for each market to their full advantage.
  5. Trading

    Surviving Bear Country

    Stay calm, play dead and keep your eyes open for attractive valuations.
  6. Investing

    Short Selling: Introduction

    Have you ever been absolutely sure that a stock was going to decline and wanted to profit from its regrettable demise? Have you ever wished that you could see your portfolio increase in value ...
  7. Markets

    Bear Market

    A financial market with declining asset prices fueled by investors’ pessimism, lack of confidence and negative expectations. While bear markets are partly based on actual investment performance, ...
  8. Investing

    Guide to Short Selling

    Want to profit on declining stocks? This trading strategy does just that.
  9. Trading

    Short Selling Risk Can Be Similar To Buying Long

    If more people understood short selling, it would invoke less fear, which could lead to a more balanced market.
  10. Investing

    Adapt To A Bear Market

    Learn how your portfolio should evolve to suit bear market conditions.
RELATED FAQS
  1. Where do investors tend to put their money in a bear market?

  2. How should young people invest in a bear market?

    Learn strategies young investors can implement during a bear market that present the greatest opportunity for long-term investment ... Read Answer >>
  3. How can an investor make money from a decline in the electronics sector?

    Learn how shrewd investors use speculation methods that include short selling, futures and put options to profit from declines ... Read Answer >>
  4. What are common investing mistakes in bear markets?

    Learn why investing in a tumultuous market can be challenging even for the most experienced investors. Avoiding these common ... Read Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    Learn how an investor can profit from a fall in the utilities sector by employing speculation methods such as short selling ... Read Answer >>
  6. Under what circumstances is short selling advisable?

    Find out when short selling a stock is profitable and what an investor should keep in mind before deciding to pursue a short ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center