A bear market is a sustained decline in asset prices of 20% or more from a recent peak, typically accompanied by deteriorating economic conditions, falling corporate earnings expectations, and rising investor fear. Bear markets vary widely in severity and duration: some are sharp and short; others are grinding and prolonged.
Bear markets are the primary motivation for active market timing. The argument is straightforward: if you can exit near the top and re-enter near the bottom, you avoid a significant drawdown and potentially emerge with more capital than a buy-and-hold investor. The challenge is that neither the top nor the bottom is identifiable with confidence in real time, and the timing cost of mistaking a correction for the start of a bear market can be severe.
The asymmetry of bear market losses compounds the challenge. A 50% bear market decline requires a 100% subsequent gain just to recover to the starting point. This asymmetry is the strongest argument for bear market risk management — but the tools for reliably identifying bear market starts before significant damage has occurred remain imperfect and contested.