Almost every day in the investing world, you will hear the terms ‘bull’ and ‘bear’ to describe market conditions. For those new to investing, this week we take a look at the differences between ‘Bullish’ and ‘Bearish’ markets.
If a market is described as ‘bullish’ then it is showing real indicators of confidence, such as:
- Prices going up
- Number of shares or ounces trading is high
- Number of companies or buyers entering the market is rising
- Technically a bull market is a rise in value of at least 20%
For example, the huge rise of the Dow and NASDAQ during the tech boom is a good example of a bull market, (Money Instructor).
Conversely, a ‘bear market’ is one in which there has been a sustained fall in prices, with no sign the market will change direction in the near future. Markets in decline can also spook investors which encourages selling.
Knowing the difference between a bear and a bull market will help traders increase their profitability. It’s about determining “the overall trend of the market,” (Bright Hub).
‘Bullish’ or ‘Bearish’ in relation to Gold
Two common markets described as ‘Bullish’ or ‘Bearish’ are the Stock Market and Gold. When the stock market is behaving confidently (bullish) Gold prices tend to drop (bearish) and vice versa.
So, if a person is described as ‘bullish on stocks’ it means that they believe the indicators of confidence in stocks are real. Or, if a person is described as a ‘Gold Bull’ or a ‘Silver Bull’, they are someone who believes the price of Gold and Silver will rise and that it is good to invest in physical Gold and Silver as a store of value.
Many investors get bearish and bullish trends wrong. This is could be due to:
- Following the crowd and believing the hype
- Coming into a market too late when prices have already risen fast
- Don’t do their own research
Bears and Bulls in action
For example, Irving Fisher, the leading U.S. economist from The New York Times on September 5, 1929 wrote: “There may be a recession in stock prices, but not anything in the nature of a crash.” And on 17, 1929: “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”
A month later in Oct. 1929 the stock market crashed losing 40% and the 12 year Great Depression began. Just before the crash stocks had peaked on 3 Sept 1929 but didn’t return to their pre-crash value until 1954.
On Jan. 25 2017 U.S. stocks hit an all-time high once again (The Guardian, 2017). A never before seen in history high! What comes next? Some investors will be able to spot patterns and behaviour trends in markets to predict what could happen next.
The New York Stock Exchange has an iconic bronze sculpture of a charging Bull but no Bear. Maybe there really should be! After all, what goes up will eventually always come down.