A bear market is a sustained period of broadly declining asset prices marked by pessimism, uncertainty, and fear. Falling prices create special pressure for investors who need to sell. section 7.5.1 section 5.4
A bear market changes both risk and decision-making:
- Selling investments to fund near-term needs can lock in lower prices than would apply during a bull market. section 5.4
- Declining prices do not affect every company equally: some may recover, while others may face permanent damage. section 7.5.1
- Short selling treats the decline as an opportunity by borrowing shares, selling them, and repurchasing them later at a lower price. section 7.5.1
A difficult position
A holding priced 20% below its purchase price can invite hopes of a turnaround, but selling acknowledges the loss and may trigger negative emotions. The housing bubble crash of 2008 also illustrates the uncertainty of predicting declines. section 7.5.1
