8) Stocks Basics: The Bulls, The Bears And The Farm

by · August 25, 2010

If you’ve overheard grown men in suits having drinks in a bar and talking about bulls and bears, chances are they’re not talking about the an energy drink or zoo animals.  They must be investors or brokers. Don’t worry, we will be discussing these terms in this section of tutorial. You soon find out that as you begin to invest, there are a whole lot of farm animals in the stock market.

The Bulls

A bull market is a term often used to refer to a positive stock market trend, but it could mean the status of the economy in general.  This trend is characterized when everything in the economy is great, lots of jobs available, gross domestic product (GDP) is growing and investor confidence in the stock market is up. In a bull market, there is an overall inrease in investing in anticipation of the increase in the prices of stocks.

A bull is also frequently used to describe the optimistic attitude of an investor towards stocks. An investor is said to have a “bullish outlook” in this case.
The Bears

A bear market is the opposite of a bull. Economy is bad, unemployment is up, recession is looming and stock prices are going down. Investing is at a low in a bear market since it is tough to select profitable stocks.

This market trend doesn’t stop investors from making money. One technique to make money when stock prices are falling is called short selling.  Another strategy is to wait until when the market is going on an upswing. This indicates that the bear market is nearing an end, and investors will want to buy in anticipation of a bull market.

A person who looks at stocks negatively is called a bear and is said to have a “bearish outlook”.

The Other Animals on the Farm – Chickens and Pigs

Chickens are characterized by investors who are afraid to take risks. They invest only on money-market securities and the fear to lose on their investments is at times great enough that they get out of the market entirely. You must realize that there are risks in all kinds of ivestments, especially in the stock market. If you are too afraid to take a risk, you can be guaranteed to see a low return on your investment.

Pigs on the other hand are the opposite of Chickens. These are high-risk investors looking for a big score in a short length of time. They regularly follow hot tips and put money in companies without confirming if it is a viable investment. Pigs are characterized as greedy, impatient, and emotional with regards to their investments. Often, the bulls and bears reap profits from pigs because of the latter’s recklessness in investing. Thus the old stock market saying:

“Bulls make money, bears make money, but pigs just get slaughtered!”

What Type of Investor Will You Be?
Bulls and bears may be continuously at odds, but know that both can make money with the changing market cycles. While chickens may still see some profit from their investments, it is better than to lose a lot by being a pig.

Before you get into the market, take time to study the different investment styles and strategies. You may be a bull or a bear, but always learn from the chickens and pigs. Don’t invest into something that you don’t understand at all.

Next Section: Stock Basics: Conclusion