Stock Basics: The Bulls, the Bears, and the Farm
On Wall Street, the bulls and bears are in a constant struggle. If you haven't
heard of these terms already, you undoubtedly will as you begin to invest.
A bull market is when everything in the economy
is great, people are finding jobs, 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,
believing that stocks will go up, he or she
is called a "bull" and said to have
a "bullish outlook."
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, 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."
The 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 all together. While
it's true that you should never invest into
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
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.
What Type of Investor Will You Be?
are plenty of different investment styles and
strategies out there. Even though the bulls
and bears are constantly at odds, they both
can 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.
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 saying:
Bulls make money, bears make money, but pigs just get slaughtered!