If you find that a lot of the terminology to do with the stock market sounds like a foreign language, don’t panic. You are not alone. The novice investor starting out will encounter a lot of unfamiliar words and concepts when considering buying and selling shares.

Top of the list of strange concepts is likely to be the terms bull or bear market. The good news is that like most investing terminology and concepts, they are really easy to understand if they are explained that way.

1.     Bear Market

‘Funny, how just when you think life can’t possibly get any worse it suddenly does.’

Marvin the paranoid android – The Hitchhiker’s Guide to the Galaxy

A bear market is a period in which every day seems like a Monday morning. It’s characteristics include a sustained period of falling equity prices so you will see shares going down in price, then going down some more, and then some. The mood of the stock market is dominated by sustained pessimism in its outlook. It’s all black and it’s all Monday.

A bear market should not be confused with a market correction. This is where the period of falling share prices is relatively short and is followed by upward trends, so more of a mood swing in the market than a depression.

Bear markets are most likely to happen during times of austerity such as in a recession, with rising unemployment, inflation and a general outlook that economic contraction is more likely than growth.

Sounds bad? It’s not. It’s actually the time you should get more interested in buying shares.

2.     Bull Market

The Oxford English Dictionary defines optimism as having ‘hopefulness and confidence about the future’, and that is pretty much what happens in a bull market.

A bull market can broadly be considered to be the opposite of a bear market. Key characteristics of a bull market include consistently rising share prices and the general mood of the stock market is one of sustained optimism. Often a bull market will occur during times of economic prosperity and growth as investors feel more confident about the future.  Exercise more caution at these times.

3.     Bear Bargains And Expensive Bull

The time that you are most likely to find a great company for a fair price is during a bear market. Excessive pessimism is good for finding cheap shares.

During a bull market share prices are more likely to be higher and the chance of paying over the odds for a share is greater. So learn to love pessimism and the irrationality of the market. Remember that the bear is your friend.

‘An optimist will tell you the glass is half full; the pessimist, half empty; and the engineer will tell you the glass is twice the size it needs to be’.

Unknown.

Jamie E Smith is the author of Making Money From Stocks And Shares

This content was provided by one of our users, Jamie