Have you ever heard someone shouting the terms “Bullish” or “Bearish” related to stock market? For layman, it may be some kind of exotic livestock auction or safari adventure. But don’t worry, we are not talking about Animal Rights here.
These are the very common and widely used terms related to Capital Market condition.
In short, a bull market describes a general market trend of rising prices and increased investing. A bear market occurs when there is a general decline in the stock market over a period of time.
Meaning of Terms
A ”bull” refers to investors who believe that a market or individual stock will rise in value. They are optimistic in nature. A bull expects prices to rise and, on this assumption, buys a stocks in the hope of reselling them later for a profit.
A ”bear” is the category of investors who firmly believe that the market or stock will drop in value. A bear expects prices to decline and, on this assumption, sells a commodity in the hope of buying it back later at a lower price, a speculative transaction called short-selling.
Searching the History
If we check the historical data of origin of these terms, we may be lost to the dust heaps of history, though some popular theories linger about how they emerged.
By the early 18th century, when people in the stock world would sell something they didn’t yet own (in hopes of turning a profit by eventually being able to buy the thing at a cheaper rate than they sold it, before delivery was due), this gave rise to the saying that they “sold the bearskin” and the people themselves were called “bearskin jobbers”.
One of the earliest references of this comes from an issue of The Tatler, April 26, 1709:
Forasmuch as it is very hard to keep land in repair without ready cash, I do, out of my personal estate, bestow the bear-skin, which I have frequently lent to several societies about this town, to supply their necessities; I say, I give also the said bear-skin as an immediate fund to the said citizens forever…
In a later edition, June 23, 1709, it goes on to state:
I fear the word Bear is hardly to be understood among the polite people; but I take the meaning to be, that one who insures a real value upon an imaginary thing, is said to sell a Bear, and is the same thing as a promise among courtiers, or a vow between lovers…
Yet another early instance of the term is in Daniel Defoe’s The Anatomy of Change Alley, published in 1719, around the time the term was popularized to something of the same type of definition we use today:
Those who buy Exchange Alley Bargains are styled buyers of Bear-skins.
One of the first reference to bears and bulls as types of investors appeared in 1761 in a book “Every Man His Own Broker; or Guide to Exchange Alley ” by Thomas Mortimer.
Bull & Bear Fight of Mexico
The Spanish brought many things with them when they colonized Alta California (Mexico), including the tradition of bull-fights.
These new settlers herded cattle with them, letting their cows and bulls graze freely over unfenced land. Spanish cattle were plentiful; but bears, real grizzlies, were the real prize money. They were difficult to get caught and handled. When a real grizzly bear was caught and caged, fight was arranged between the bear and the bull.
It was between these monsters and the fierce Spanish bull that the desperate struggles formerly took place, when a dollar a head was willingly paid to see the bull and bear fight in California. These savage sports are long gone, but the reference is still used.
First Introduction in New York Times
After watching a bear and bull fight in Toulumne County, California in the 1850s, New York time writer Horace Greeley coined the terms “bear market” and “bull market” based on these fighting styles to describe stock market performance.
Bulls were noted to advance against opponents in an upward fashion, while bears usually attacked in a downward motions.
Another explanation for the bull and bear market terminology is the following: In the early days of the London Stock Exchange, offers to buy stocks were posted on a bulletin board at the exchange and were referred to as “bulls.” Thus, when there was a large demand for shares, the board (and the market) was full of “bulls.” On the other hand, when there was little demand for shares, the board was bare, and there was a “bear market”.
Whatever the origin, it is undisputed that these two are the most coined terms in describing market condition.
Stages of Bull or Bear Market
Theorists believe that each bull or bear market normally undergoes three stages.
Bull Market Stage
- In the first stage of a bull market, dubbed the accumulation stage, investors test the waters by buying until an initial peak of the market. This move is followed by a subsequent correction and more buying until surpassing of the initial peak confirms an upward trend.
- In the second stage, which is often the longest and largest, business conditions, earnings and stock prices improve. This builds investor confidence and encourages a broader portion of the public to participate in the market.
- In the final stage, there is excessive speculation and inflationary pressures begin to appear, signalling a downturn in the market is not far off.
Bear Market Stage
- In the first stage of a bear market, known as the “distribution” state, investors and forecasters remain optimistic despite declines.
- In the wake of moderate declines, there is a secondary “reaction rally” that makes up for a portion of the declines.
- The reaction rally, however, peaks lower than the previous high. When the market average breaks below the previous low, a bear market is confirmed.