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Bulls and bears

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Bulls and bears (an analogy from the real animals) are not very common words in everyday business language. The two words are mainly used in stock trading to refer to the mood of a share on the entire stock exchange.

In trading stocks, the bulls and bears are in a constant struggle, pulling in opposite directions. That’s one at one time the Nairobi Securities Exchange (NSE) will be up and the next week it’s down.

BULLS: A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up.

Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a “bull” and is said to have a “bullish outlook” or is bullish.

BEARS: A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, and only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a “bear” and said to have a “bearish outlook”.

There other animals on the farm – chickens and pigs. Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it’s true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk.

Even the chickens see some returns, though not much. The one loser in this is the pig.

Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it’s often from their losses that the bulls and bears reap their profits.

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What type of investor are you? There are plenty of different investment styles and strategies out there. Even though the bulls and bears are constantly at odds, they can both make money with the changing cycles in the market. Even the chickens see some returns, though not a lot. The one loser in this picture is the pig. (Investopedia.com)

Make sure you don’t get into the market before you are ready. Be conservative and never invest in anything you do not understand. Before you jump in without the right knowledge, think about this old stock market saying: “Bulls make money, bears make money, but pigs just get slaughtered!” (investopedia.com)

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BT Reporter
BT Reporterhttp://www.businesstoday.co.ke
editor [at] businesstoday.co.ke
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