Zacks highlights commentary from People and Picks Member «BearMo».
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Anatomy of a Bear Market
A bear market should never be confused with a correction. Correction can be severe but bear markets are far worse. A bear market is a period in time when the price of securities fall. There is usually widespread pessimism and negative sentiment grows as the bear market lingers. Bear markets normally see enormous price drops and as prices fall, investors become even more pessimistic and normally end up selling stocks at even lower prices.
Usually a drop of 20% or more and a continuation of declining prices that lasts longer than 2 months constitutes a bear market.
Bear Markets can easily wipe out 40% or more of an indexes value. They can wipe out much higher amounts of individual stocks.
The bear market of 2007 to 2009 saw losses of 56% in the market index .
Bear Markets normally last a minimum of 6 months out to 2 or 3 years.
Eventually panic will ensue as investors give up on stocks and will sell at any price driving stocks to new lows as investors flee stocks.
Warren Buffett has a name for bear market panic. He referred it to as “blood in the streets”.
Whether panic is the time to buy stocks, is difficult to say. I prefer to buy stocks after a panic and when there is a bit of a rally starting. The exception would be a core dividend stock (with a proven bounce-back in good times history) whose price has fallen to provide an excellent yield.
Postscript: In my prior blog, “The Bear, Embrace It,” I provided possible strategies to employ in a bear market. I also indicated what I did and what I am doing going forward. In today’s world, in lieu of cashing out with losses, with the amount of inverse ETF’s available and with a good understanding of options, one can play in a bear market and win.
The most recent picks by «BearMo» are:
A sell rating on Terex Corp. (TEX),
a sell rating on Horsehead Holding (ZINC)
a sell rating on Short-Term VIX ETN (TVIX).
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