By Courtney Luke
Wealth of Geeks
Investing experts have been debating hard for the last couple of months - many say a bear market is inevitable this year. Others insist that we’re on track for a bullish outcome. These terms have been used since at least the 1700’s, but many new investors may not know what they mean - or how they fall in the debate between bullish and bearish.
There’s money to be made in both situations, and pros and cons to both types of investors. Which are you?
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Attacking like the bull
Bullish means that the market’s overall outlook is positive. Bullish is when prices are rising or a market is on an upward trend.
The term bullish originated in Amsterdam as far back as 1637 to describe the overall outlook on markets. However, it wasn’t until later in 1880 that Charles Dow first published this term, referring to the stock market’s general upward trend.
Since a bull market means rising prices, the hand gesture associated with bulls was often sold as good luck charms when shares rose. A popular item would be a small brass bull with one or two horns worn around the neck.
The world recently experienced a bull market period in 2019 due to covid-19. Unfortunately, the bull market started after the virus outbreak, and the world is still trying to recover.
A bullish stock expects to rise in value. And, it’s not just the price of the stock but also the valuation and the assets under management.
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How to determine if you are a bull
A person who holds a bullish outlook on a financial market is called a bull. A bull believes that the world is coming to a turning point and will soon become more prosperous on all levels.
A bull’s outlook may be due to several reasons:
• A bull believes that the situation is improving. The economy may be at its tipping point, so he will choose to invest in areas he believes are more likely to grow.
• A bull believes there will be a lot of growth over the next few years. Countries going through economic changes will become prosperous after their previous mistakes.
• A bull holds a positive attitude towards the stock market. Stocks and their prices will increase in the future.
• A bull believes that the bull market beats the bear market because he assumes the economy is improving.
• A bull believes in the value of stocks concerning their intrinsic value and company profits. Stock will be worth more in the future because a company will grow and make profits to raise its overall value.
• A bull believes in the value of stocks based on solid fundamentals. The stock’s future earnings are strong and on track. The stock price is low compared with its past growth, so he may choose to invest in stocks with good fundamentals.
• A bull feels optimistic about the economy. Conditions are improving and will continue to do so in the coming years.
• A bull believes that the inflation level will decrease in the future, lowering interest rates.
• A bull believes in the value of stocks based on corporate growth. Evaluating securities based on company profit and sales growth, as well as ability to earn profits over an extended period.
Bullish traders always have a great deal of investor confidence. Using the above outlooks, you can quickly tell whether you are a bull.
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Selling the bear
Bearish means that the market’s overall outlook is negative.
Bearish is generally the case when prices are falling or a market is in a downward trend.
In 1880 Charles Dow first referred to the stock market’s general downward trend as a bear.
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Historical bear market periods
Historic bear markets refer to when stock prices go down for a specified period.
The worst in history came in 1929 when the stock market crashed. It led to a market crash and an 89 percent drop in the Dow Jones Industrial Index.
Another primary bull market went down between 2007 and 2009, lasting 1.3 years and sending the S&P 500 down by 51.9 percent.
Between 1947 and 2021, there have been fourteen bear markets, ranging in length from one month to one and a half years. Analysis of available data found a range in severity, from a 51.9 percent drop in the S&P 500 to a decline of 20.6 percent.
It affected significant economic players, except Amazon, whose share value increased, probably due to more people shopping online following government restrictions.
Bearish stock is stock expected to drop in value. So it’s not just the stock price but also the valuation and the assets under management.
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How to determine if you are a bear
A bear is someone who believes that the market is overvalued. Market sentiment controls Bears.
A bear’s outlook may be due to several reasons, including:
• Investors expect the Fed to raise interest rates, making it more expensive to borrow money and, therefore, increase bonds’ prices.
• A bear thinks that a recession is coming.
• A bear thinks that earnings will disappoint. Nowadays, stocks tend to move in predictable cycles. For example, a bear believes that the current bull market will end, and prices will fall.
• A bear thinks that there is an economic crisis in the future, leading to a general slowdown of all markets. No one will invest in the market because the economy will have a recession in the future, and many other factors are not looking promising. Bears bet that everyone involved with investing will dump their stocks to buy non-perishable assets.
• A bear thinks that there is a bubble in stocks. Stocks are overvalued, and the narrative of bull markets and market speculation are overhyped.
• A bear believes that the economy will slow down, which will lead to an increase in unemployment rates and a decrease in consumer spending.
• A bear believes that inflation will increase and prefers to invest in bonds, stocks, and other assets not affected by inflation.
• A bear thinks that security prices are too high relative to earnings and the company’s ability to earn profits over an extended period and looks for any reason that he can find for why stocks are overvalued and is willing to sell them to buy something more worthwhile.
• A bear believes that stocks will be a bad investment and considers it better to invest in bonds and other assets less affected by inflation.
Bearish traders are generally short-term traders who rely on their bearish sentiments.
Using the above outlooks, you can quickly tell if you are a bear.
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Warren Buffet, Bear Investor
Warren Buffett is a renowned bearish investor. He is one of the world’s most significant investors, and believes investors shouldn’t take unnecessary risks, strictly following bearish trends.
He avoids high volatile markets like the crypto market, always considers the market outlook, and puts more focus on defensive stocks. He thinks that the most prominent mistake investors make is predicting the direction of prices or economic events.
He also believes that stock prices are always volatile. An investor can’t have a long-term successful investment strategy because market conditions change too quickly. So Buffett’s long-term investment strategy is to buy and hold stocks with a long-term horizon and only invest in companies with a good history of success.
While you may say being bearish has helped him, it has also denied him lifetime opportunities. He refused to buy Tesla shares in the past, citing he never liked putting his money on highly volatile tech companies.
It might have put him on a very different trajectory if he had.
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George Soros, Bull Investor
George Soros is considered one of the most famous bullish investors globally. Having carried out bullish long-term trading for a long time, he developed a successful investment strategy. However, he is usually more aggressive than other investors, causing people to call him irresponsible.
Soros was known for betting against the British pound in 1992 during the economic crisis. And he made a lot of money by doing so.
After his success, the British government forbid him from trading, so he moved to New York and attempted to illegally create a hedge fund. Finally, the US tax authority gave him a non-prosecution agreement in 1999 and let him start his hedge fund. The fund, named Soros Fund Management, made a profit of 1 billion dollars in its first year and has become one of the most significant hedge funds in the world.
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Conclusion
In conclusion, I hope our analysis of bullish vs. bearish trends has helped you understand the difference between these two terms. In addition, understanding the differences between these two market movements will help you better understand future price action.
