A bull market is a sustained period when the market is on the rise, while a bear market is a period when the market experiences a decline in value. In a bull market, the market participants are usually optimistic, while in a bear market, pessimism reigns. Let’s look more into this bull vs bear market and what we, as investors, can do in each market.
Bull Market vs Bear Market
The market enters a bull market if it rises more than 20% from its recent low. On the flip side, a bear market occurs when the market drops more than 20% from its recent high. The bull and bear market period can last from months to years. The market goes on a cycle from bull market to bear market to bull market again, and the cycle keeps repeating. Generally, bull markets tend to last longer than bear markets.

Characteristics of a Bull Market
- Optimism in the market: In a bull market, the market participants generally are optimistic. As a result, they put more money into the market, thus pushing the price higher and higher.
- Robust economy: Consumer confidence is usually high, economic growth is good, GDP is good, unemployment is low, businesses are doing well, with corporate earnings rising.
- Loose monetary policy: The central bank usually is in a loose monetary policy, such as low-interest rates, increasing circulating money supply, and any incentives that drive growth to the market. With consumers having more money to spend, the economy can grow as those spendings fuel more economic activities.
Characteristics of a Bear Market
- Pessimism in the market: The opposite tends to happen in a bear market. Market participants are pessimistic about the short-term outlook. They prefer to keep their money in cash or bonds and lower their exposure to risk-on assets such as stocks. As a result, the market keeps declining as more and more exit their holdings.
- Weak economy or recession: Consumer outlook and confidence are also low, economic growth is low (or even recession), unemployment is rising, and corporate earnings and future guidances are not good.
- Restrictive monetary policy: Bear market is often triggered by the central bank pivoting to a restrictive monetary policy, such as increasing interest rates and decreasing money supply. As a result, consumers are spending less than before. With less consumer spending, companies will find it challenging to grow their earnings. It is also getting increasingly difficult for companies to borrow money, making them unable to grow their business.
What To Do as Investors?
Although a bear market is an excellent time to buy (because a bull market usually follows), it is much easier said than done. If you have been investing for a while, you can probably relate to this psychological barrier.
First, if you are waiting for a bear market, you may have missed all the gains you would have gotten if you invested immediately, even during a bull market. A bull market can last for many years. You don’t want to wait many years before investing.
Secondly, buying during a bear market may also be a double-edged sword. On one side, you know that once the sentiment reverses, the market will likely rebound into a bull market. Conversely, you don’t know how long a bear market will last. It can take years and outlast your cash reserve!
Historical Bull vs Bear Market Period and Performance
Historically, bull markets last longer than bear markets.

Because the average return of a bull market is also more than the bear market’s average loss, if we zoom out, the market has always been in a long-term bull market.

Knowing these bull vs bear market behavior, how should investors invest during those times?
Investing in a Bull Market
In a bull market, risk-on assets usually tend to outperform. For example, growth stocks tend to perform better than defensive stocks.
Assuming you are a sophisticated investor who tries to maximize your return, ideally, you want to increase your allocation into the risk-on assets and invest as much as possible at the start of a bull market. You can exit some of your positions when the bull market is overheating, and a reversal may come soon.
Be careful not to fall into the emotional trap of the market by FOMO-ing when the market is already overvalued. A bull market may end with a blow-off top where euphoria enters the market. Rely on your objective valuation methodology to make sure you avoid falling into the trap set up by the market.
If you are a less sophisticated investor who prefers a passive investing approach, stick with the dollar-cost averaging strategy and buy throughout the bull and bear markets.
Investing in a Bear Market
In a bear market, risk-off assets usually perform better, such as defensive stocks, gold, bonds, or even cash.
For sophisticated investors, a bear market is for buying. Be greedy when the market is fearful, and be fearful when the market is greedy. Many risk-on assets are hit hard in a bear market and may be trading at a discount. This can be an excellent chance to increase your holdings.
You may also want to consider rotating your risk-on assets to the more risk-off assets to hedge against the potential losses during the bear market.
As easy as it sounds, buying during a bear market can be psychologically challenging. Nobody knows how long a bear market may last. You may think you are already buying at a discount, but the market can continue declining for years. As you keep buying the dip, the market keeps dipping, and eventually, you will run out of cash reserves. Keep in mind that the market in the short term can be irrational.
For non-sophisticated investors, you can always stick with the dollar-cost averaging strategy to save yourself from all these emotional traps in the market.
Focus on Long-Term
Trying to time the market is not easy. But we know from our observations that the market is just rotating between a bear and a bull market. Over a long time horizon, the market has always been in a bull market. Even if you are in a bear market now, zoom out, and you can see that the odds are in your favor if you focus on the long term.
We hope that knowing this bull vs bear market behavior can equip you well as you start and navigate your investing journey.