What are some of the greatest rivalries out there? A few that probably come to mind:
Let me add in one of my favorites from the financial world: bull versus bear.
No, I’m not talking about some ancient feud between two deadly animals (though that DOES sound awesome).
Bull vs bear describes investment trends that have the power to impact the global financial market. It’s a phrase you’ve probably heard thrown around or referenced before...but what does it mean? And how does it affect you and your investments?
Let’s take a look at bull vs bear markets, examples of each, and the impact they have on your financial strategy, to set the record straight.
In a nutshell:
That’s it..
Oh, you wanted more? Great! Let’s take a dive into each market and see how you can recognize one when it happens.
You’ve probably seen this statue before.
This is the famous Wall Street Bull — and its placement within the beating heart of America’s financial institution is no mistake.
“Bull market” is a phrase used to describe an economic environment that is growing and optimistic. And though there’s no set way to identify a bull market, it typically means that asset classes of all types — such as stocks, bonds, real estate — rise for an extended period of time.
That’s why you’ll hear about investors who are confident in the market being described as “bullish.”
Other key indicators of a bull market:
When a bull market occurs, it’s typically here for a long time. Morningstar conducted a study that took a look at market trends from 1926 to 2017 and discovered that the average bull market lasted NINE years.
That’s a bull market in a nutshell. Just like light is to dark, though, the bull market can only exist with its opposite: the bear market.
If the bull market describes growth and stability, the bear market represents the inverse: pessimism, loss on investments, and a usually regarded “bad” economy.
A bear market describes an economic trend in which there is pessimism about the market. Generally, there’s stagnation or a downward trend, people’s confidence in the economy is low, and more people are selling stock than buying. A bear market is also a good indicator of a recession — a long-term period of negative growth.
As such, investors who are pessimistic about market trends are typically described as being “bearish.”
Other key indicators of a bear market:
Though a bear market seems bad, it doesn’t typically last long. Remember that study from Morningstar? It shows that the average bear market lasts only 1.4 years, while the average cumulative loss from a bear market is 41%.
Also there are several ways investors can benefit from a bear market. One example: would you rather be buying a house when prices are going up or down?
Another: Would you rather invest in the market at its bottom or at its peak?
Bear markets can be scary, but they don’t tend to last very long — though that’s admittedly cold comfort for investors going through one.
Now you know the difference between a bull vs bear market! Congrats! But why the heck are they called that?
Traditionally, it’s believed that the term comes from the way each animal attacks.
A bull, with its squat legs and sharp horns, attacks by swinging its head upwards, like the upward swing of the economy in bull market years. Bulls are also typically lively and ferocious animals, not unlike the optimistic investor.
A bear on the other hand will swat downwards with its paw when it attacks, like the downward trend of a recession. That, coupled with the fact that bears can also be found hibernating for long periods of time, makes it no surprise that “bear” will be used to describe slow market periods.
Others believe that their connection to the stock market can be traced back to the Elizabethan period and ancient Rome. During this time, the two animals were the center of bloody bear- and bull-baiting shows, where the two animals would fight for people’s entertainment. Over time, the association stuck and became associated with the financial sphere.
Simply by doing your research, and looking up terms like “bull vs bear” or “portfolio rebalancing,” you’re already ahead of 99.99% of people out there when it comes to planning for your financial future.
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