What It Is:

The term "bear" refers to a person who has a negative outlook on the market.

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 bear will alter their portfolio strategy by liquidating securities they believe are going to lose value in the foreseeable future. A bull, 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:

The markets can be affected by investor perceptions. The bear's drive to sell and the bull's drive to buy can affect the market depending on whether the bears outnumber the bulls or vice-versa.