Bulls Battle Bears

Many people are intimidated by the business news because they don’t understand the “weird” terms being referred to. Bull? Bear? Ostrich?!! No, you are not watching the Animal Planet Channel but these are terms that I will quickly summarize for you. Hopefully by the end of the write up, you will be able to use these terms with confidence when talking to others about the markets.

Bear
The term bear refers to the given market conditions. Bull and bear are probably the most familiar terms on Main Street. Bear markets are filled with negative viewpoints and outlooks. Normally, a bear market is one that has experienced declines of at least 15-20% and lasts more than two months. Probably the most famous bear markets occurred in 1929, which some believe caused the Great Depression. Unfortunately, economic indicators in 2008 have drawn comparisons to the Great Depression of 1929. The severe housing and credit bubbles in the United States burst suddenly in 2007, and this credit unwinding, or “deleveraging” had a negative ripple effect on economies and markets worldwide. Venerable institutions, such as Bear Sterns and Lehman Brothers were wiped out by this bear market. Stock markets across the globe also experienced severe downturns. Governments engineered financial rescue packages for many large banks and insurance giants to avoid global financial markets meltdowns.

While there is no easy method for investors in terms of surviving a bear market, many financial advisers suggest that bear markets occur as part of the normal economic and business cycle. For longer-term investors, these bear markets could be viewed as buying opportunities. Other advisers may recommend selling stocks and raising cash until a clear direction or bottom of the market begins to appear.

Bull
The term bull refers to a very positive stock market environment in which stock prices are increasing and money is flowing into stocks. Investor confidence is high in bull markets. During the 1990s and through early 2000, the U.S. stock market experienced a sustained bull market in stocks. Perhaps the poster child for the technology bull market of the 1990s was Cisco Systems (CSCO). Cisco was experiencing tremendous growth due to the internet boom, and the stock returned nearly 75,000% from 1990 to 2000. Similarly, America Online (AOL) returned 480% in just six months. Bull markets can be very powerful creators of wealth for the average investor as well as Wall Street gurus.

A Dog With Fleas
Depending on your movie knowledge, you may remember this classic line in the 1987 movie “Wall Street”: “It’s a dog with fleas, kid.” That was how Gordon Gekko described a stock tip from a young, ambitious stockbroker named Bud Foxx. A dog is an under performing stock or asset. Most Wall Street investors think of “dog” as a four-letter word, but a few are attracted to the dogs of the market. An investment philosophy called the dogs of the Dow theory advocates purchasing the most beaten-down stocks in the Dow Jones Industrial Average (DJIA) each year. According to this theory, by purchasing the stocks with the highest dividend yields in the Dow 30, investors can expect returns in the 13% range over a 15-year period.

Ostrich
An ostrich is an investor who fails to react to critical situations or events that are likely to impact his or her investment. For example, SEC is launching an investigation into a company, an action that could be detrimental to the company’s stock price, the ostrich will simply ignore this news. The ostrich effect is one in which investors bury their heads in the sand, hoping for better days ahead. Ostriches appear (or disappear) most frequently during bear markets, when people tend to experience the most financial stress.

Personally, I have been an ostrich a few times last year when I got stuck with (FRE) and (FNM). I did not react to the news and took severe hits which fortunately I was able to later recover after some hard work. Don’t ignore the NEWS! Its your money and you need to know whats impacting it.

Pig
A pig is any investor who puts greed ahead of their investment strategies. Jim Cramer (from CNBC) has a famous expressions: “Bulls make money, bears make money and pigs get slaughtered.” A pig tends to think that a 100% return over a 12-month period is not good enough. As a result, the pig may then go and borrow money on margin or mortgage his or her home to buy more of a stock at a higher price with the hope of making more money on the investment. The pig can get slaughtered if the stock drops and all the original gains are lost.

Smart investors are disciplined investors. Professional investors know when to take profits as well as when to cut their losses. Their primary concern is the preservation of capital and not necessarily hitting a home run every time they step up to the plate.

I tell this to everyone I see, small gains are better than steep losses. When your up, get out and wait for another buying opportunity. I have seen people lose their entire life savings trying to bank a million dollar return on the market. Its not often those happen so check the greed and emotions out the door and protect your initial investment while working to raise your capital. Pigs NEVER win.

Sheep
A sheep is an investor who has no strategy or focus in mind. This type of person simply listens to others for financial advice, and often misses out on the most meaningful moves in the market as a result. For example, sheep investors who had a philosophy of only buying value stocks in the 1990s missed one of the greatest bull markets of our time. In other words, a sheep can be eaten by a bull or bear if he or she isn’t in the right place in the market.

In other words, while listening to others for advise, keep your mind open to current news and market trends. Don’t shy away from looking at various charts and finding out your own patterns. You will be amazed at how your mind works once its applied. Sheeps are timid and that is not what playing the stock market likes. Learn to get over the fear of making your own decisions and I know you will find success.

Hope this made some of the “trader talk” more clear. Its funny how such a sophisticated group can utilize the most basic animal words to describe so much. But no you know and can understand articles better and also talk like a pro!

Happy Investing!

Aman, MBA