A Bear Market Does Not Start At 20% Down

Numerous financial writers are warning that with stocks down nearly 20%, they’re about to “enter” a bear market.  

Nonsense.   A bear market starts at the top.  

A bear market traditionally is any decline extended over time.  Mass media writers invented a 20% requirement out of whole cloth, likely an attempt to delay scaring their retail audience out of stocks as long as possible.  Words like “bear” are not to be uttered so as to keep ‘em buying Wall Street’s profitable products.  As long as market’s down only 19%, they can claim the bull market is intact, with the implication that every dip should be bought.  

There’s no real justification for numerically defining terms like “correction”, “bull market” or “bear market”.  It’s it’s down 12% or 15% or whatever, it’s easy enough to just quote a number.  How any meaning could possibly be gained by classifying all declines of 11%-19% alike is a mystery.  Has a market really changed character if it’s 19% down or 21% down?  Is the difference any greater than if it’s 16% down versus 14% down?

But not merely satisfied with an already kludgy taxonomy, it’s become fashionable to say the stocks have “entered” a bear market when they’re 20% down.  This facilitates denial and permits us to maintain the bull market buy-the-dip habit 20% longer.  Who might want you to keep buying until their stocks are 20% down?  

People who want to sell them, of course.

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