Bull Markets, Bear Markets, and What to Do in Each

Markets move in cycles. Understanding the cycle does not let you predict where you are in it — nobody can do that reliably. But it helps you avoid the two most expensive mistakes investors make: buying aggressively at the top and selling in panic at the bottom.

A bull market is a sustained rise in asset prices — formally defined as a 20% or greater gain from a recent low. The name comes from how a bull attacks: thrusting its horns upward. Bull markets are associated with economic expansion, rising earnings, and investor optimism. They last longer than most people expect. The bull market from March 2009 to February 2020 lasted almost eleven years — the longest in US history (Motley Fool, 2026). During bull markets almost everything goes up, almost everyone feels smart, and the dominant risk is overconfidence. Investors take on more risk than their actual tolerance supports and mistake a rising market for personal skill.

A bear market is a sustained decline — a fall of 20% or more from recent highs, lasting at least two months by convention. The name comes from how a bear attacks: swiping its claws downward. Bear markets feel longer than they are because losses hurt more than equivalent gains please. Since 1946, the S&P 500 has experienced thirteen bear markets lasting an average of fourteen months (Fisher Investments, 2026). The dominant risk is panic. Investors who sell at the bottom lock in permanent losses. The market has recovered from every bear market in US history.

What to do in a bull market: resist the temptation to increase risk simply because the market is rising. Recency bias — the assumption that what has happened recently will keep happening — is the bull market's most dangerous cognitive trap. Maintaining your asset allocation through rebalancing forces you to sell some of what has risen and buy some of what has not. It enforces the most reliable investing principle: buy low, sell high.

What to do in a bear market: do not sell. When your portfolio has fallen 30% and every financial headline is negative, selling feels like rational risk management. It is not. It is locking in a loss at the worst possible time. The investors who weathered the 2022 bear market — when the S&P 500 fell 25.4% — saw it recover fully by early 2024 and reach new all-time highs. The bear market lasted eight months. The recovery took eighteen. Both required patience most investors find difficult.

The most honest thing you can say about market cycles: you will not know which phase you are in until after the fact. What you can know is your time horizon and your actual risk tolerance — not the one you claim when markets are rising, but the one you will hold when they are falling. Build your strategy around the real number. The cycle will test it.

These are patterns from investment research — what you do with them is your decision.