What is a Bloodletting
Bloodletting is the term for a period of significant financial losses. These times of loss occur most commonly in a bear market, when securities values are more likely to experience a rapid decline.
BREAKING DOWN Bloodletting
Bloodletting is named after the medical practice of relieving an ailment by draining blood from a vein. This practice still has some common uses, especially when dealing with Congestive Heart Failure (CHF). In finance, bloodletting happens when investors attempt to rapidly offload investments to offset an even more significant loss than they are already experiencing.
As happens during a bear market, securities can experience a rapid drop. Some investors will opt to sell these declining assets off at a lower value, hoping to be rid of them before they can decline any further, or before they lose value altogether. Some investors will choose instead to ride out the coming bear market and hold onto their assets. These investors hope that the market will rebound, and they won’t have to take on any losses or experience any bloodletting.
These investors often are already in a secure financial position and will take advantage of the lower priced assets that have begun flooding the market in the hopes that they will be able to reap a profit when the market turns bullish once more.
What is the Difference Between a Bear Market and a Bull Market
The bear market and bull market are named after two large animals. It is said that the market conditions are tied directly to the animal’s approach when attacking. A bear will swipe down from a raised position, whereas a bull will approach with its head down and gore upwards.
A market is considered a bear when values are on the decline; imagine a bear standing above its prey and coming down hard with an outstretched paw. A market is referred to as being bullish when it is rising; envision a bull which has gone low and used its head and horns to raise its prey into the air.
Both forms of the market have their pros and cons, but a bear market is thought of as a declining market, whereas a bull market recalls a time of economic prosperity. While some may experience profitability during a bear market, there is more widespread growth when the market is bullish. Investors who purchase undervalued assets and hold onto them until the market turns once more will benefit further from these times of turmoil. However, a bull market can present risk to investors. Similarly, many investors still experience hardships and losses during a time of greater economic prosperity as well.