Bear

What It Is:

A bear has a negative outlook on the market (belief that the value of an asset or market will decrease).

How It Works/Example:

Investors generally fall into two mindsets: those with an optimistic outlook who foresee prosperity, called "bulls," and those with a pessimistic outlook who foresee decline, called "bears."

A bearish investor will alter their portfolio strategy by liquidating securities they believe are going to lose value in the foreseeable future. A bullish investor, on the other hand, believes securities will continue to rise and would continue to invest long in securities.

Depending on an investor's outlook, they could change from a bear to a bull or vice-versa.

Why It Matters:

Market perceptions can affect securities prices depending on how many bulls or bears there are in the market. This is best expressed by the bull/bear ratio. In either case, bulls and bears can impact the direction of market movements as a result of the investments they make.

If you're having difficulties remembering the which animal describes what, just remember: A bull attacks by thrusting his horns in an upward movement, while a bear attacks by swiping his paw in a downward movement. Therefore, if the market goes up, it's a bull market; it the market trends down, it's a bear market.

For more details on the history of these words, read The Quirky And Brutal Origins Of The Terms 'Bear' And 'Bull.'