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.
The
Bulls
A bull market is when everything in the economy is great, people are
finding jobs, gross domestic product (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 and believes
that stocks will go up, he or she is called a "bull" and
is said to have a "bullish outlook".
The
Bears
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 entirely. While it's true that you should never
invest in 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 risk,
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?
There are plenty of different investment styles and strategies out
there. Even though the bulls and bears are constantly at odds, they
can both 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 stock market saying:
"Bulls make money,
bears make money, but pigs just get slaughtered!"
