Investing Deathmatch: What Happens in a Bull Market vs. a Bear Market

THE PEOPLE HAVE CHOSEN VIOLENCE!

Every month we poll our Patreon donors on what article topics they’d most like to see. And this month, the patrons have called for a rumble in the jungle, a date with fate, a coming to blows, fisticuffs, a fight to the death! That’s right, sportsfans, it’s time for another round of…

INVESTING DEATHMATCH!!!!!!

In this article series, we pit two investing concepts against each other and judge which one is better for you, the investor. Sometimes it’s a close fight. Other times it’s a full-on K.O. Either way, there will be blood (and gifs… lots of gifs). Whether it’s stocks vs. bonds or index funds vs. actively managed funds, the nerdy, analytical shrapnel will leave none unscathed!

Let’s meet today’s contenders…

The fan favorite: Bull market

And the crowd goes wild! Everyone loves a bull market. It’s the outcome we all hope for when investing in the stock market.

A bull market is a period of time during which the value of assets continuously rises. So give a cheer—the value of all our investments is climbing steadily upwards for years. Huzzah!

“But wait,” you say, because you are a clever and attentive little bean, “aren’t you always talking about how the stock market constantly fluctuates in a random pattern of dips and swells that no one can accurately predict?” Yup! So if the value of everything in the stock market is constantly going up and down, how can we ever point to a specific period of time and call it a bull market?

Money nerds generally agree that we enter a bull market when most—not necessarily all—investments are rising in value. It can last months or years. The money nerds in charge of writing financial history generally agree that a bull market occurs when stock prices rise “by 20% after two declines of 20% each.”

But it’s not just investment values that are affected by a bull market. This fair weather also sometimes includes a nice strong GDP, low levels of unemployment, and high confidence among investors.

What should I do during a bull market?

Sharp-eyed readers will notice I used the phrase “generally agree” twice in the section above. That’s because a bull market isn’t really marked by a line in the sands of time. Historians and analysts alike sometimes disagree on when a bull market starts, when it ends, and what market forces bring it about.

Fortunately… none of that really matters to the average investor! All you need to understand is that a bull market means you’re making money hand over fist in the stock market. Your investments are doing well and it’s a great time to hold onto them.

Notable bull markets in history:

• The post-WWII boom, Jun. 1949 – Aug. 1956
• Before Black Monday, Aug. 1982 – Aug. 1987
• It’s the ’90s, baby, Oct 1990 – Mar. 2000
• After the housing bubble burst, 2009 – 2020

The heel: Bear market

You’ll all recognize a bear market because, uh… we’re in one right now.

Unlike a bull market (and The Rock), no one is ever actually rooting for a bear market. It’s basically the opposite of a bull market: the value of assets in the stock market is falling by about 20%, and it generally lasts anywhere from a few months to a few years.

Bear markets are fucking scary as hell, especially if you’re an inexperienced investor or close to retirement. Because it looks like you’re losing all your money! One day you might have a nice lil’ nest egg of $50k invested in an index fund, and a week later that could be down to $40k… or less.

What should I do during a bear market?

Minor market fluctuations are perfectly normal, which is why we don’t recommend checking your portfolio balance every day. That goes double for a bear market, because it makes it look like the sky is falling.

Which is why past bear markets and stock market crashes have been linked to an increase in the rates of suicide.

Bear markets are marked by big falls in the stock market. But that’s not the only thing that characterizes them: investor pessimism, poor GDP, and high levels of unemployment all contribute to the financial environment around a bear market. It’s a shitty time to try to make ends meet even if you don’t have a cent invested in the stock market.

Yet even so… you should stick to your investing strategy. Buy regularly and hold for the long-term, even when it looks like a waste of money.

Notable bear markets in history:

• The start of the Great Depression, Sept. 1929 – Nov. 1929
• The OPEC oil embargo, Jan. 1973 – Oct. 1974
• The Dot Com Bust, Mar. 2000 – Sept. 2001
• The Great Recession/housing market collapse, Oct. 2007 – Nov. 2008

And the winner is…

Well, it’s definitely not us, beholden as we are to the whims of the stock market. And I think we can all agree that a bull market is way more fun to root for than a bear market!

But it’s too soon to call this match! Because I don’t think we’ve been entirely fair to the bear market. Which was an intentional choice, as the whole point is to teach you about the nuances of investing. Surprise!

Take a closer look at the historical bull and bear markets above. Notice anything about the dates? Bull markets tend to follow bear markets, just as bear markets tend to follow bull markets.

That’s right, Mr. Frodo: “… it’s only a passing thing, this shadow. Even darkness must pass. A new day will come. And when the sun shines it will shine out the clearer.” If you can endure a bear market (far easier than enduring my encyclopedic knowledge of Tolkien), you’ll be rewarded with a bull market later on.

So… is it safe to keep investing right now?

Remember, it’s about time in the market, not timing the market. Panicking at the first sign of a bear market can be a huge mistake. According to The Motley Fool, “Although it may seem counterintuitive, simply waiting it out during periods of economic turbulence can actually keep your investments safer. The stock market could fall during the short term, but its long-term performance is far more important.”

In other words, if you ride out the storm, you’re more likely to make it safely to shore.

Pulling your money out of investments during a bear market means you’re selling them at a loss. By contrast, you don’t actually lose money if you don’t sell your investments. Their value might go down in the short term, but the only time a stock’s value matters to you is when you buy it and when you sell it.

Not only that, but a bear market can be a great time to scoop up investments at a steep discount! It’s like a going-out-of-business sale, but for tiny slices of Ford and Berkshire Hathaway. Some might argue this makes a bear market the ideal time to invest in the stock market—even better than during a bull market.

Remember the immortal words of our investing lord and savior, Warren Buffett: “Be fearful when others are greedy, and greedy when others are fearful.”

In other words: don’t be afraid of a bear market, as it could be a good opportunity to get ahead in your investments. Buy and hold, baby! Buy and hold.

New to investing?

Some of you have yet to dip your toe into the dangerous underground fight club that is investing in the stock market. And that’s ok! It’s a scary place, full of shifty characters like stock brokers and analysts. That’s why we recommend starting small. Like, microscopically small, with our sponsor Acorns.

Acorns automatically rounds up your debit card purchases to the nearest dollar, and invests the roundups for you. You’ll start to build your very first investment account a few dollars and cents at a time, learning about stock market performance as you go.

Click the button above to sign up with Acorns, and they’ll kick some money our way to support the blog!

Investing in the stock market can seem intimidating. Especially during a bear market. That’s why we want to demystify it and make it an accessible and safe option for every citizen of Bitch Nation. Be not afeared, bitchlings! It’s ok to try investing even now!

Had enough? Or are you thirsty for more?

If this Investing Deathmatch got you thirsty for blood, read the rest of the series here:

• Investing Deathmatch: Timing the Market vs. Time IN the Market
• Investing Deathmatch: Stocks vs. Bonds
• Investing Deathmatch: Investing in the Stock Market vs. Just… Not
• Investing Deathmatch: Paying off Debt vs. Investing in the Stock Market
• Investing Deathmatch: Traditional IRA vs. Roth IRA
• Investing Deathmatch: Managed Funds vs. Index Funds

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