The terms “bears” and “bulls” are used to define the differing behaviours of investors and their attitudes towards the stock market.
Bulls are the optimistic ones of the bunch. They believe stock prices will inevitably rise and good market conditions are on the horizon. These investors take a long position on stocks, meaning they buy stocks hoping the prices will rise.
Bears are considered to be pessimistic towards the market. They believe stock prices will fall in the future. Many bears will take a short position on stocks, meaning they make a profit if stock prices fall. These investors are betting against the market.
Bull and bear markets are sadly not markets where actually bulls and bears buy and sell things…although that would be awesome. A “bull market” describes a time when the economy is healthy and the stock market is moving upwards. A “bear market” is when things are going badly in the economy and the stock market is falling.
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Clearly, these terms derive from the two animals. But the actual reasons as to why they are used is not clear. There are, however, a few hypotheses:
- Method of attack: When a bear attacks its prey, it usually swipes down with its claws, comparable to the downward motion of a worsening market. Bulls, on the other hand, thrusts their horns up in the air, representing the upwards motion of a booming market.
- Bearskin traders: In the olden days, bearskin traders would sell skins to customers before owning them. They would later purchase them from trappers, hopefully at a lower price to make some profit. This transaction is very similar to short selling stocks, a common trading method used by bearish investors. Considered the opposite animal to the bear, “bulls” is used to describe the opposite type of trader; those who go long instead of short.
- Movement: Bulls are much faster and agile compared to bears, even when both are in aggression mode. Bulls, by virtue of being more muscular, can move much faster and with speed comes more agility and strength. Bears, on the other hand, have a significantly higher body fat percentage – you may even consider them obese – and hence, are much slower and less agile, though certainly not lacking in strength. Bull and bear markets are thought of in similar terms, with bullish markets being described as robust while bear markets being referred to as sluggish.
- Image: Let’s face it; bulls are associated with aggression and strength while bears are more associated with, well, cuteness and fondness, both of which aren’t exactly symbols of strength. Think of it this way, why do you think bullies are called by such a name instead of “bearies”? Also, why do you think those cute, fluffy toys are called teddy bears and not teddy bulls, eh? It’s because bulls, with their sinewy and muscular appearance, look more aggressive and strong while the bear’s chubby and furry appearance give it an impression of being weaker or less “alpha”. Bull and bear markets are the same! Strong markets are markets that are going upward, or bullish, while weak markets are those that are going down or bearish.
- Hibernate: While it’s true that bears don’t hibernate in the truest sense of the word, they do tend to sleep a lot during winter while bulls don’t. In a sense, bullish and bearish markets are a lot similar – bullish markets are markets that are alive and not “sleepy” while bearish markets can be thought of as “sleepy” ones, hence the sluggishness and downtrend.
So, are you a BULL vs BEAR?
Let us know why in the comment section below.