#FUNdfact: Let me tell you 'bout the Bulls and the Bears

Now that you’re an investor, you may have come across two terms: “bull market” and “bear market.” For example, lots of market commentators say that the shares are in a bull market at the moment. But what does that mean?

                                 Fearless girl and charging bull sculpture:  Source

                                Fearless girl and charging bull sculpture: Source

In short: a bull market is when share prices are generally going up, and a bear market is when share prices are generally going down.

Of course… there’s always a little more to it than that, so here’s some questions and answers about the bulls and bears in today’s #FUNdfact:

What do their names mean?

We have no idea. And as far as we can tell, neither does anyone else. There are a few theories out there, but nothing concrete.

It’s kind of frustrating, because bulls don’t have much to do with rising markets and bears have very little to do with falling markets. So just try to remember that bull=up and bear=down.

What causes bull and bear markets?

Bulls and bears are both based on prices. These come from how much people want shares. If they really want shares, they’ll be willing to pay more for them; if they don’t really want shares, they won’t be willing to pay that much.

More than that, it’s probably saying something about the overall economy. When things are generally going well, companies will be more profitable. It follows that more people would want to invest in these companies—after all, they’re doing well.

This means that the opposite is true too. If the economy is not doing well, then companies aren’t doing that well either—and people aren’t going to want to invest in companies that aren’t doing very well. If they do invest in them, they won’t be prepared to pay that much to do so.

You can also get bulls and bears solely from how people think things are going. If people think the market is crashing, they might panic and start selling at whatever price they can get. As more people sell, prices start to drop—even if the companies underneath are doing well! And the reverse can happen too. If people get a surge of confidence, they might start buying up shares, even if the companies underneath them aren’t actually great shape.

These tend to be shorter-term bulls and bears, as the reality of the situation will eventually win out.

How do I know if I’m in a bull market or a bear market?

If your time frame is long enough, it’s pretty easy to tell whether you’re in a bull or bear market. Take a look at this snapshot of the NZX Top 50 over the past 12 months:

bull2.png

Pretty bullish! It’s gone from just under 7,500 to just under 8,000—that’s quite a bit!

Things get a lot trickier when you shorten your timeframe. Take a look at the same index over just one day:

bull3.png

It’s all over the place. At noon, it was looking pretty bearish, then in the early afternoon it was turning into a bull, only to settle back right around where it started. In short time frames, it’s impossible to tell whether you’re in a bull market or a bear market.

Why does it matter?

This only really matters if you’re buying and selling shares in a short time frame. If you’re selling your shares a few weeks after you buy them, and the market turns into a bear market, you’re going to be looking at a bit of a loss. This is not great.

However, if you’re in for the long haul and putting your $50 dollars every couple weeks into Sharesies, you’ll have it both ways. During the bull markets, your shares will gain in value, but you’ll also pay a higher price for them. During bear markets, your shares will lose value, but you’ll also pay a lower price—which will set you up when the next bull comes charging down the street.

So the final word on these two animals? Don’t worry about them. Just set, forget, enjoy the ride and let the pros fret about the bulls and the bears. Because when your timeframe is long, it’s all one big pile of bull:

bull4.png

 

Ok, now for the legal bit.

Investing involves risk, including the potential loss of principal. The info provided above isn’t a recommendation to buy, sell or hold any financial products available through the Sharesies platform. Before investing, consider your investment objectives and read the fund’s product disclosure statement carefully. It contains the fund’s investment objectives, risks, charges and other information which should be considered carefully before investing.

Grow your investment portfolio, one payday at a time