Bullish and Bearish Market – Meaning, Relevance, and more

Bullish meaning

Bullish in the investor’s sense of the word is defined as a person who believes that the stock market as a whole or a few stocks or bonds would rise in price in the future. This is also known as bullish sentiment.

In the beginning, the term ‘Bull’ was used to define an investor that would invest in a stock for speculative gains. Later on, it started covering the whole market.

Where the meaning of Bullish comes from?

It is believed that the word bull comes from how the animal, ‘Bull’ when it attacks with its horns, always hits ‘upwards.’ Here, upward defines again in the stock market. Because the bull is hitting up and the stock market is also going up, this is how bull and gains became synonymous.

Bearish Meaning

Bearish is used to define the opposite sentiment to the bullish. It is used to identify an investor who believes the stock market or one or more stocks or bonds would go down. It is also called as Bearish Sentiment.

History of the word bear

A commonly held belief is that when a bear attacks an enemy with its claw, it always brings the opponent down instead of hitting up as the bull does. So, the down-hitting is used to symbolize the fall in prices of stocks. 

In the eighteenth century, the word bearskin was commonly used to define a stock seller speculating that the stock price would fall. It was later shortened to bear. The bear would borrow a stock and sell it hoping that the price of the stock would fall in the future, and he would buy it and give it back and make a profit.

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What is a bulls market?

A bull market is identified by positive investor sentiment. ‘Buy Everything’ is a common saying during this time. Everyone believes that stocks would keep on rising forever and no one would lose money. Even everyday people get into the action.

Bulls market is also identified through another phenomenon called FOMO, or fear of missing out. Everyone believes that if they do not buy the stock now, they will miss the gains of a lifetime.

Joseph. P. Kennedy, Sr. Has been quoted as saying, ‘When the Shoeshine Boys Talk stocks it was a great selling signal in 1929.’ It was during the bull market of 1929, everyone, even housewives were buying stocks. And we all know what happened after, ‘the great depression.’

Example of a bulls market

The dot com bubble of the 2000s is an excellent example of a bulls market. It should better be called a stock mania. Everyone was buying internet stocks, believing that prices would only go up and up. Companies were gaining billions of dollars in the stock market when they did not have a business plan and did not even have a single red cent of revenue.

It was believed that if you have a website, you could get listed on the Stock market. Peter Thiel, the first investor in Facebook and co-founder of PayPal, described this mania in his book, Zero to One as ‘I got a check from a South Korean investor I didn’t even ask for and there was no return address in the mail in which the check came in.’

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This is FOMO at its best. The bulls market always ends with a spectacular fall, as we saw in the 2000s internet bubble.

What is a bear market?

A bear market is characterized by diminishing investor sentiment. Everyone is selling, and no one is investing. The stock market is stagnant. Even good companies which are booking record profits do not show much gain in their stock price.

People believe that holding cash is better than investing in the stock. 

Example of a bear market

After the stock mania of 1929, there was a bear market that lasted almost thirty years. Companies such as General Motors, which were traded for about a hundred times forward earning, were trading below their book value. Even though the interest rates were recorded low at that time, no one was borrowing to invest in the stock market. Everyone believed that the stocks would not go up and thus did not trade in stocks.

Characteristics of a bear market

If you want to know how to find out if you are in a bear market, here are some explicit identifiers to help you:

i)  No one is investing.

ii) The economy is stagnant or growing at a very slow pace.

iii) Overall, everyone in society is pessimistic.

Characteristics of a bulls market

There are some unambiguous identifiers during a bulls market. These identifiers are given as follows:

i) The economy is growing very fast.

ii) Everyone in society is optimistic about the future.

iii) Profits are rising, and unemployment is falling.

iv) Fear of missing out investment opportunity is everywhere.

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v) Investor sentiment is good.

Taking advantage of a Bulls Market

Everyone makes money in a bulls market. You can also make money in a bulls market. Here are some strategies you can use to make money in a bulls market:

i) You should buy and hold. It is a straightforward yet very effective strategy. If the prices are rising, you need to buy and hold because you will make money when the stock prices would go up anyway.

ii) Full Swing trading is also known as active trading. In this strategy, a trader uses every available strategy to invest in the stock market. An investor buys stocks, sells stocks, shorts stocks, and goes long stocks. It is an attempt to max out profits, squeezing profits out of every avenue.

Conclusion

Bullish and bearish is the opposite side of the same pictures. Everyone can make money in both bear and bull markets if the investors use the correct strategy.

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