Stock Market Categories

A bear is an investor or trader who believes the trend of stock prices is down and trades or invests with that trend by selling his stock and/or selling short.

A bear market is a depressed or declining market. One can have a bear market in real estate, advertising, automobiles, art, commodities, bonds, or anything else including the stock market. A bear market in stocks is usually defined in ways that equate the mini-bear markets of 1983, 1987, and 1990 with the more prolonged bear markets we saw in the 1970s or even with the great bear market that began in 1929.

Bear markets in three categories -

1. Baby bears such as those we have seen during the last 20 years, which were little more than secondary reactions within a papa bull trend.

2. Mama bear markets such as we saw in 197374.

3. Papa bear markets such as the one from 1929 to 1942 and, in constant dollar terms, from 1966 to 1981.

Within these major bear markets, it is possible to have mini and medium size bull markets, but what makes them still a bear market, in spite of huge up-moves, is that the original damage to market and economic infrastructure is not solved until the end of the cycle. For example, it was not until the minibear of 1981 that the problem of inflation was solved, enabling the stock market and business to begin a major new bull market.

During the last 20 years, many analysts have forgotten that, although when you buy or sell a stock you are at that moment simply making a bet with another investor on the future direction of that stock, you are not just buying a lottery ticket. You are buying a piece of a company. Therefore, it matters over the medium and longer term whether that company will succeed or fail. Today, it seems fashionable to divorce the value of a stock from its price. That was almost valid during the late great bubble, but may not be so again in our lifetime. New bubbles arise only when the last one is forgotten, usually in a new generation.

Be Not A Bull, Nor A Bear, But A Realist

A bear is not (at least should not be) a permanent pessimist. Nor should a bull always be an optimist if he is wise. Both should try hard to be realists. You should be able to change from a bull to a bear or a bear to a bull, as conditions change, and not be the least inconsistent. Some people are permanent bears, and give the symbol a bad name. Permanent bears often have a puritan ideology that sees prosperity and bullishness as some kind of Original Sin.

Likewise, many people are always bullish, obviously without sufficient justification. The almost continual bull market from 1982 to March 2000 has made most people permanent bulls. It has been impossible for them to accept that any downturn is more than a short-term correction. But, in any market, the flexible realist is the winner the man or woman who can switch directions overnight. So, let it be crystal clear that a proper bear is someone who used to be a bull but became a bear as conditions changed.