When we talk about bull and bear stock markets reminds me that it's a zoo out there. And, like any zoo, there are quite a few wild species to be found!
The first two are the bulls and the bears. We do know that a bull market is when stock prices are climbing strongly and a bear market is when they're languishing.
One common myth is that the terms "bull market" and "bear market" are derived from the way those animals attack a foe, because bears attack by swiping their paws downward and bulls toss their horns upward.
This is a useful mnemonic, but is not the true origin of the terms.
Long ago, "bear skin jobbers" were known for selling bear skins that they did not own; i.e., the bears had not yet been caught. This was the original source of the term "bear."
This term eventually was used to describe short sellers, speculators who sold shares that they did not own, bought after a price drop, and then delivered the shares.
Because bull and bear baiting were once popular sports, "bulls" was understood as the opposite of "bears." I.e., the bulls were those people who bought in the expectation that a stock price would rise, not fall.
Both bull and bear markets are inevitable!
Smart investors try to anticipate both events to profit from their eventuality.
Bear markets are generally shorter in duration than bull markets. To avoid being hurt by bear markets you must recognize the signs early and move part of your assets into cash equivalent investments.
We do recommend that you invest for the long term. Don't let the bears get you down!
Abraham Lincoln (1809 - 1865) once said: "When you have got an elephant by the hind legs and he is trying to run away, it is best to let him run!"
The same thing is true of bears - don't panic and sell low. Let the bear market run its course, which history tells us is likely to be short.
On the other hand, a bull market can leave many investors feeling pretty good about their ability to prosper.
Their confidence bolstered by the good times ...
Some even find themselves swept up in "Bull Market Myopia" and forget the basic tenets of smart investing, like asset allocation and portfolio diversification.
Holding good stocks through bull and bear markets is a prudent strategy. However, many investors feel that they do not want to be in the market during a bear market. It is difficult to predict when to move in and out of the market.
When a bear market ends, a strong upward move can occur in a short time. If you are not in the market you will miss the move. The probability that your timing will be wrong is very high.
Unlike slow-starting bull markets, bear markets may start with a mini-crash - a major drop within a few days when investors least expect it.
Many investors are afraid to get out of a bull market for fear of missing "big profits" at the top of the market.
This is a recipe for disaster!
It is also known as greed!
As a bull market continues to increase, investors should start to decrease their stock holdings and move them into cash or money markets accounts.
Now, besides bulls and bears there are two other animals in our zoo to keep watch for!
Ostriches:
Are investors who stick to their old strategies, oblivious to changes in the world around them.
And then there are the Hogs:
Bulls can make money ...
Bears can make money ...
But hogs are investors who are too greedy and usually get slaughtered!
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