Seven Castles

Bears and Bulls

                                      

September 21, 2006

 

A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook".

 

A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".

 

You are wondering why bears and bulls got into the stock markets. Why not tigers and lions and ostriches...or anything else?

 

There is a commonly told story that the origin of these terms stems from the fighting styles of the two animals. A bear presses down on its opponents, crushing them, while a bull hooks them with its horns and lifts them skywards. This is just bunk with no evidence to support it.

 

In fact, the bears and bulls first appeared in England in the early 18th century. Bear was the first to appear referring to the practice of selling stock one does not yet own for delivery at a future date with the expectation that the price would fall in the meantime, enabling the speculator to buy the stock at a lower price. Such speculators were called "bearskin jobbers" after the proverb "selling the bear's skin before one has caught the bear". Gradually, the term took on the meaning of being generally pessimistic about stock prices. Bull appears a few years later, in 1714, and was almost certainly influenced by bear. It is likely that the popular practices of bear baiting and bull baiting suggested the pairing of bull and bear. Bears are cautious animals that do not like to move too fast. Bulls are bold animals who might charge right ahead. That is why an investor is said to be "bearish" if he or she believes the stock market will go down and a "bearish" investor will buy stock cautiously. For the same reason, a "bullish" investor believes the market will go up and he or she will charge ahead and put more money into the market.

 

Even though the bulls and bears are constantly at odds, they can both make money with the changing cycles in the market. The one loser in this picture is the pig, as this old stock market saying goes: "Bulls make money, bears make money, but pigs just get slaughtered!" Pigs get slaughtered whether the bulls have a party or the bears have a party. That pig is your lay investor, high-risk investor looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it is often from their losses that the bulls and bears reap their profits.

 

There are plenty of different investment styles and strategies out there and an investor can be bearish or bullish about a particular kind of stock. What one insists is "the wave of the future", another dismisses as "irrational exuberance". And while one vendor frets about technologies poised to "replace something", another industry technologist expresses confidence that advances of such magnitude are "decades away". However, everything is changeable - there is a bull lurking in every bear and a bear hiding in every bull.

 

【作者: zhangliping】【访问统计:】【2006年09月21日 星期四 07:04】【 加入博采】【打印】