Financial Terminology Series -1

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Term of the Day : 

Bear Market


A market condition in which the prices of securities are falling and widespread pessimism causes the negative sentiment to be self-sustaining. 
In Bear Market, on assumptions of Losses, investors continue Selling which lead to grown pessimism.  A bear Market should not be taken as a correction in the stock market, as it is a short-term trend, usually which has the duration of around two months or less.
Corrections can offer a good point of entry to the stock market to value investors. But Bear market rarely provide such opportunity because determining the bottom of the bear market is quite an uphill task or say impossible. As per the data availability, 32 bear market has been seen averaging 3.5 years of each one from 1900 to 2015.
Short Selling is one of the tactics to get gains from the bear market. This strategy involves selling borrowed shares and buying them back at lower prices. The profit earned by short will be the difference between the selling and buying prices of the shares, which referred also as " Covered." 
For Example, An investor shorts 1000 shares of Maruti at Rs. 200 and later price falls to Rs. 170 as they covered at the price of Rs. 170. The investor profit will Rs. 30 X 1000= Rs. 30000.

Image courtesy : http://blog.runnymede.com/the-global-bear-market-has-reached-us-soil

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