Bull Market / Bear Market

A bull market is a sustained period during which stock prices rise broadly, typically defined as a 20 percent or greater increase from a recent low. Investor confidence is high, economic conditions are generally strong, and optimism drives buying activity. Bull markets can last months or years.

A bear market is the opposite: a sustained decline of 20 percent or more from a recent peak. Fear, pessimism, and deteriorating economic conditions drive selling. Bear markets are typically shorter than bull markets but can be sharp and painful.

Impact on Valuation

Bull markets tend to push valuations above fair value across the board. P/E ratios expand, risk premiums compress, and investors accept higher prices. This is when margin of safety is hardest to find and discipline matters most.

Bear markets push valuations below fair value, creating buying opportunities for disciplined investors. Many of the best long-term investments are made during bear markets when fear drives prices below intrinsic value. Warren Buffett's famous advice to be fearful when others are greedy and greedy when others are fearful speaks directly to this dynamic.

Understanding market cycles is important context for valuation. A stock that looks expensive in a bear market may be genuinely overvalued. A stock that looks cheap in a raging bull market may still be fairly priced because the overall market has lifted all valuations.