Bulls and Bears
If you’ve ever turned on CNBC or opened the Wall Street Journal you’ve heard analysts talk incessantly about bulls and bears. And, you probably questioned the sanity of people who relate animals to the stock market. But, bulls and bears are actually a simple part of everyday Wall Street lingo.
Bulls are investors that are optimistic about a certain stock, a market, or a general economic trend. They aggressively believe that a stock will rise or a market is on the way up, so they tend to buy on their beliefs. If I say that I am bullish on a stock, I mean that I believe the stock will increase in price in the future.
Bears, on the other hand, are pessimistic about a stock or the markets. They believe that trouble is looming around the bend, and that one ought to stay away from the danger. If someone is bearish on a stock, they’ll tend to sell, avoid buying it, or even short sell the stock (Check out our Trillionaire Term of the Day on Short Selling).
The terminology can also be applied to the entire stock market. For example, you’ve probably heard many investors saying that we are currently in a bear market. A bear market is usually characterized by recessionary economic trends, fearful investors, and falling stock prices. A bull market is the exact opposite: in a bull market you should expect expansion of the economy, aggressive investors, and rising stock prices. Famed hedge fund manager and Mad Money host Jim Cramer loves to say, “there is always a Bull Market somewhere.” By this he means that there will always be a group of stocks, currencies, or commodities that are on the rise.
Why bulls and bears? Although the true origin of their use has been lost in investor lore, people have come up with some clever guesses. One theory is that the term bear is based on ‘bearskin jobbers’ who sold bearskins before they received them, in hopes that the price would decrease and they would make a profit. So in a sense, they were the first short sellers. Another guess refers to the ways that the two animals attack their prey. Bulls aggressively charge and thrust their horns upwards, hence the aggressive nature of investors and the upward swing in the markets. Bears attack by downwardly swiping with their paws like the downward direction of a bear market.
Regardless of the true source of the terminology, it’s of the utmost importance for you to understand what people mean when they talk about bulls and bears. At the very least, you’ll gain appreciation for how investors are thinking. And now you can add a dash of flavor to your financial vocabulary. Enjoy
-Matt Schwartz
College Trillionaire
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