Bull or Bear Market

Into The Wild

Bull market vs. bear market

What is the difference?

The terms “bull market” and “bear market” are often used to describe how stock markets are doing in general—whether they are rising or falling in value.


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Bull market

In a bull market, stocks are rising. Usually, when stocks rise the economy as a whole is also performing well—unemployment is falling or is stable and the economy is growing at a solid pace.

If a financial expert is considered a “bull” or “bullish,” it means he or she believes that stocks are headed up. People can also be bullish on other investments, such as bonds, the US dollar, or Bitcoin.

Bear market

In a bear market, stocks are falling. More specifically, a bear market refers to a period when the stock market has fallen 20% or more from its peak. (A fall of 10% to 20% is only considered a “correction.”)

Bear markets usually go hand-in-hand with recessions—periods of time when the economy is shrinking instead of growing. Unemployment generally rises during recessions.

People can be “bears” or “bearish” too, meaning they think stocks (or other assets) are due for a fall.

History of bull and bear markets

There have been eight bull and bear-market cycles since 1929. The average bull market has lasted nine years and delivered returns of 474%. The market has shed 41% during the average bear market, which has lasted 1.4 years.

What to do?

In a perfect world, you could perfectly predict what the market is going to do and sell your investments at the end of each bull market, then reinvest at the end of each bear market. (It’s called buying low and selling high.)

In the real world, even the most renowned investors can’t predict when the market will hit a top or bottom. But there’s good evidence to show that investors who try to predict market peaks and lows, and who trade in and out of stocks a lot, tend to earn much worse returns than those who just buy and hold.  After all, if you earn 474% but then lose 41%, you’re still coming out on top.

Fun facts:

  • Bear and bull markets are named after how each animal attacks its prey. A bull usually drives its horns up into the air, while a bear swipes its paws downward upon its prey.
  • Bears and bulls were literally once fierce opponents when it was popular to put them into an arena to fight one another. Matches using bulls and bears (whether together or against other animals) took place in the Elizabethan era in London and were also a popular spectator sport in ancient Rome.
  • “Bulls make money, bears make money, pigs get slaughtered” is an old Wall Street saying that warns investors against excessive greed. Pigs are investors whose goal is to make the most amount of money in the shortest amount of time and are known to either take on high degrees of risk or overlook risk to make a profit.

References

  1. http://www.investopedia.com/articles/basics/03/100303.asp
  2. http://www.investopedia.com/university/stocks/stocks7.asp
  3. http://www.fool.com/knowledge-center/2015/10/30/bulls-make-money-bears-make-money-pigs-get-slaught.aspx
  4. http://aspirebytci.com/wp-content/uploads/2013/03/03-14-13-Bull-and-Bear-Markets-Through-History.png
  5. www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=4ecfa978-d0bb-4924-92c8-628ff9bfe12d

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