It seems these days we all hear the terms “bull market” and “bear market” quite frequently. But we have to ask ourselves; do we actually know their true definitions? It’s rather fascinating, yet simple where these terms originated. The manner in which these animals attack offers a clue.
Bears attack with their claws out, swiping in a downward fashion, hence when the stock market is falling it is usually synonymous with a bear market. A bull attacks trusting its horns in an upward motion and is associated with appreciating assets. Hence a bull market is synonymous with a rising stock market.
Yet do the markets actually behave like these two animals? We all see on any given investment dedicated channel or publication that the terms are used often and freely. But just because a market is moving in one direction doesn’t mean it has earned a particular animal’s moniker. A market, sector, or investment may act in a similar manner to these beasts, but only exhibit comparable characteristics.
However the magnitude or degree of that movement is the most important aspect of the true classification of a bull or bear market. For the markets to truly earn these metaphors they need to sustain a prolonged period, usually moving by at least 20% or more in a direction. For a typical investor these terms can either excite or scare them. If we are armed with the proper understanding of widely used financial terms it can aid in keeping a clearer head throughout investment journeys.
We are not advocating that any degree of upward or downward changes in the markets within that 0-20% gray area should be ignored. It’s in our nature to follow the ongoing movements of investments big or small as each investor has the right to do. However, one should be cautioned before jumping to conclusions, positive or negative, when they are introduced to our beloved stock market creatures.