Learning from Bear Markets

Ever wondered why a falling market is called a Bear Market? Bear attacks it by swiping down from above. So falling markets are called Bear market.

Similarly a Bull thrust its horn up from below and attacks upwards, so rising markets are called Bull market.

So these animal attacking actions are related metaphorically to the movement of a market.

But today we are more interested in learning from Mr. Bear, lets get started.

Technically, an Index / a Stock is said to be in Bear market, if it falls at least 20% from recent high. As I write this post, Nifty is down approximately 16%. It would be technically in a bear market if it falls below 14800 areas. By the way we are into 9th Month of correction, its very important data point as we would understand ahead!

I started my journey in financial markets in the year 2000. Over the last two decades I have experienced 7 Bear markets. Each bear market taught me valuable lesson. Sharing the same with you all:-

• Like in 2000 I learnt not to catch falling knifes! Stocks that have fallen 70-80% look bargains, but they are on their way to abyss. Better leave them alone. (IT Stocks like Silverline! )

• 2003-2007 saw one of the best bull run. In the dream run, Nifty went up 7 times in 5 years! But in the same period there were two Bear markets - 36% decline in 2004 & 31% decline in 2006. I learnt that nothing goes up in straight line. Everybody needs a breather after a sprint, including markets.

• 2008 bear market broke the spine of bulls. IPO was the biggest calamity then. Understood that IPO is where the promoters and early investors sell at premium valuations while the markets are good. Since have avoided IPOs.

• 2010-11 was a very dull phase. Nothing seemed to move. Even the bear market seemed to move a snails pace. It was most boring to watch screen in that period. Understood that markets not only go up and down, they also move sideways. That is when the patience is most tested.

• With learnings from past bear markets, it was time too capitalize on opportunity in 2015-2016. I learnt to filter out noise and act from experience and own personal reading & understanding of markets.

• 2020 was surprise test for everybody. But by that time I knew I had to look left on charts whenever in crisis (history). Through the uncertainty one thing I was certain, about human endeavor to overcome. Past experience taught to not let fear turn into panic. Eventually the biggest lesson was pessimistic look smart, but its optimistic that make money.

Some Data Points :-

• Average of the Bear markets comes to 9 Months. Shortest being 2 months in 2006 & longest being 20 months in 2000-2001.

• It takes twice as time for markets to recover lost ground, that is from bear bottom to surpassing previous high. It takes average 21 months to surpass previous highs.

• Harder the market falls, stronger it bounces back in the long run.

Going by data, in next few months, we could likely have a bottom in place. Your portfolio returns few years hence would be dictated by how you behave in coming few months.

Post is purely to share my personal experience and emphasize on importance of history & data to navigate the financial world. Its not an advise to buy or sell. Read it for educational purpose only.