The Psychology of Money

A bear market is the opposite of a bull market; it refers to economic slowdown and stock losses. Housel observes that when investors lose money in a bear market they may become spooked and sell their stocks, losing the opportunity for those stocks to recover their value and create profit that can compound.

A financial bubble is when the price of an asset quickly increases in a way that cannot be sustained long-term. When the bubble “bursts,” the cost of the asset decreases sharply. For example, a real estate “bubble” would mean that the price of houses in a certain area regularly rises until it suddenly decreases. Housel defends investors’ actions during bubbles, claiming that short-term investors are acting logically when they purchase and resell such assets to make a profit.

A bull market is when the stock market makes strong gains as stocks become more valuable. Housel refers to bull markets when discussing investment strategies, noting that investors do not want to miss out on opportunities presented by a bull market.