Investing Basics: What are bears and bulls?

Just like their Cockney cousins to the east, City gents developed a lexicon all of their own; then charged handsomely for delivering advice to their mystified clients – writes Christian Leeming.

However, most of the information that was previously the preserve of the red-braced community, is now available to DIY investors, and as part of our mission to debunk financial services, we look at the much vaunted concept of ‘bear’ and ‘bull’ markets.

Two of the most common phrases you will see from commentators in the pink pages are the expression of being either ‘bullish; or ‘bearish’ about markets, or perhaps an individual investment. But what do they mean?

Of all the jargon employed in the Square Mile, these are some of the simplest to explain.

A bull market is one that is rising; if you are bullish on an asset or a market, it means you think the price will go up. If received information, or data gathered is described as bullish for the market, then it’s seen as positive news that will drive prices higher.

A bear market is the opposite – a falling market; if you are bearish, it means you think the price of a market or an asset go down. Bearish news or data is seen as something that will drive prices lower.

Although there is nothing significant in the actual number, other than the fact that it represents a significant movement, a sometimes adopted definition of a bull market – a market that is viewed as being on the rise more generally – is one that has risen by more than 20% from its most recent low.

Conversely, a similar definition, is applied to bear markets.

Some market analysts argue for a more thoughtful assessment of markets to take into account underlying conditions and span a wider period of time; there are sometimes termed ‘secular’ or ‘structural’ bull or bear markets.

In a nutshell, bulls are optimistic about asset prices, while bears are pessimistic.

The origin of the terms is not known for sure, but one theory is that they come from a rather grisly bloodsport – popular in both Elizabethan England and gold rush era California – in which a bull would be pitted against a bear, with spectators betting on the outcome; thus ‘bulls’ versus ‘bears’.

Supposedly in support of this theory, bulls represent a rising market, because when bulls attack, they thrust their horns upwards, whereas when bears attack, they claw downwards.

An alternative theory is that the term ‘bear’ originated with the market for bearskins; middlemen in the trade would sell skins before they’d bought them from trappers – in effect, short-selling. Hence the term ‘bear’ – with its opposite being ‘bull’.