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Bear (Investor) Definition
A bear is a term used for an investor who aims to be in a profitable position with a fall in stock prices in the market. Bears are usually considered to be pessimistic regarding a specific market condition. For instance, if an investor followed the bearish approach for the famous S&P 500, he or she would try to gain profit from a fall in this particular index.
A Little More on What is a Bear Investor
An investor can act bearish in commodity market, bond market, and stock market. The stock market comprises of trade activities taking place between bears and their counterparts, bulls who are optimistic about stock prices. In the last century, the stock market of the United States has grown by 10% per annum on an average. This data informs that each bear who has traded in the long-term market has ended up losing money.
As mentioned above, bears are pessimistic about the movement of the stock market. They use several strategies for gaining profits with a fall in the market, and incurring losses when the stock prices shoot up. Short selling is the most popular strategy that bears use. It is the reverse of conventional approach that asks to buy at low, and sell at high price. In short selling, sellers tend to buy low and sell high, but in the inverse pattern, meaning selling high first, and then buying low with a hope that there is a fall in the prices.
In order to carry short selling, the investor can borrow shares from an intermediary, and further sell them in the market. Once he or she has made the sale, and received proceeds from it, the short seller still needs to pay back to the intermediary for the number of shares borrowed. Here, the objective is to restore them for a longer period, and a lesser price, so as to keep the difference as margin or profit. Short selling involves more risks than traditional investments. In traditional investments, the stock price can only reduce to zero. This means that the investor would only lose the money he or she made investment for. However, in short selling, there is no limit of losses that a short seller can lose owing to an unlimited increase in price.
There are many affluent investors who are globally known for holding a bearish sentiment in the stock market. Peter Schiff, a famous Wall Street investor, is known as a typical bear. He is a stockbroker and has written many investment-based books. He shows a sheer pessimism on stocks, and gives more preference to the ones holding intrinsic value such as commodities and gold. Back in August 2006, he referred to the U.S. economy as the great movie ‘Titanic’. And, he received appreciation for analyzing and giving predictions about the Great Recession (from 2007 to 2009). In his career, he has predicted many prospective scenarios in the stock market which never appeared to be true in reality.