What are Bulls and Bears?

Bullish and Bearish: Market Gibberish, at it’s Finest?

When I first heard the terminology ‘bull’, ‘bullish’, ‘bull market’, ‘bear’, ‘bearish’, and ‘bear market’, I wasn’t quite sure if it was in reference to a cultural celebration in Pamplona, Wall St., a meat market, or a zoo. To confuse you even further, you may have even heard Jim Cramer use the phrase, ‘bulls make money, bears make money, hogs get slaughtered’ (curiously, Anthony Gallea wrote Bulls Make Money, Bears Make money, Pigs Get Slaughtered a few years before Cramer started using the phrase).

Interestingly, many theories have been thrown around, but nobody is quite sure where these terms originated from. My favorite interpretation is based on the two animals fighting methods (bulls thrust their horns updward in a battle, and bears swipe their paws downward). Other interpretations refer to hibernation, fur trading, and overall speed. Rather than sort through the mythology, let’s take a look at what different uses of ‘bear’ and ‘bull’ refer to in today’s investment terms (and we’ll throw in pigs for good measure):

Bullish (or Bull)

Someone who believes it’s a good time to make a purchase or actually takes action on the purchase of a given investment because they believe it is due to increase in value.

Bearish (or Bear)

Just the opposite of bullish; someone who believes that an investment should be sold because it is going to decrease in value.

Bull Market

Also described as a ‘bull run’. Refers to a long-term primary trend when investors are optimistic and confident that a market, as a whole, is in good shape, and investments are due for further gains. As a result, the market trends upward by 20% or more over an extended period of time.

Bear Market

Refers to a long-term primary trend when investors are pessimistic about market conditions and many sell their investments in anticipation of further losses. As a result the market trends downward by 20% or more over an extended period of time.

Bull Market Correction

A short-term secondary trend when there is a decrease of 10-20% of the market’s value during an extended bull market.

Bear Market Rally

A short-term secondary trend when there is an increase of 10-20% of the market’s value during an extended bear market.

Pig (hog)

An investor who gets ‘fat with confidence’ and continues to buy stocks during a long bull run thinking that nothing will go wrong and they will continue to make gains.

What Factors Determine a Bull and Bear Market?

A number of factors, both real and imagined, will lead to a bear or bull market. Typically, either will start with a real change in economic activity. Some examples include a group of influential companies exceeding (or missing) expectations during earnings reports, a long-term increase (or decrease) in the value of currency, or a number of other combined micro or macroeconomic factors.

Usually, these real economic factors will result in a change in investor psychology regarding current and future market conditions. Investor sentiment then will lead into an upward or downward trend in demand and supply for market investments. Higher demand than supply over the long term can result in a bull market, while higher supply than demand can result in a bear market.

In a post later this week, we will be taking a look at current market conditions and figuring out if we’re truly in a bear market or in a bull market correction. Based on the definitions, what type of market do you think we’re in?

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