Question Tag: Bear market

i) Market Condition:

The market condition described in the preamble is a bear market.
(1 mark)

ii) Distinction between a Bear Market and a Bull Market:

• Bear Market:
  A bear market refers to a financial market condition where prices of securities are falling or are expected to fall. It is typically characterized by a decline of 20% or more in major stock indexes like the S&P 500 or DJIA over a sustained period. In a bear market, investor sentiment is pessimistic, and there is widespread fear and uncertainty about the future performance of the market.
• Bull Market:
  A bull market, on the other hand, is a financial market condition where prices of securities are rising or are expected to rise for an extended period. A bull market is characterized by optimism, investor confidence, and expectations that strong performance will continue for a prolonged period. Investors are generally more willing to buy into the market, expecting higher returns.

The principal difference between the two market conditions is that in a bear market, prices are falling, while in a bull market, prices are rising.
(5 marks)

iii) Investment Strategies for a Bull Market:

1. Buy and Hold Strategy:
   In a bull market, investors can buy securities and hold them for an extended period, expecting that prices will continue to rise. This strategy takes advantage of the general upward trend in the market.
2. Increased Buy and Hold:
   Investors can increase their investment in securities they believe will perform well as the bull market continues. This involves buying more of the securities that have already shown an upward trend, expecting further gains.
3. Short Selling:
   Although short selling is more commonly associated with bear markets, in a bull market, an investor can identify overvalued stocks, sell them at a high price, and repurchase them when the price eventually dips, taking advantage of corrections within the overall upward trend.

(Any 2 strategies @ 2 marks each = 4 marks)