Bull and Bear Markets

There can be few words of investment jargon used so casually as bull and bear. The terms have the brand power of a hoover or a biro. The great Wall Street broker, Merrill Lynch, was nicknamed ‘The Raging Bull’ (until it inappropriately went bust in 2008). Indeed the very symbol of Wall Street is the famous bronze statue of the Charging Bull in Bowling Green Park. Everyone surely knows that a bull wants or expects prices to rise and that the bear is the opposite. The words are so universally accepted that they have almost risen beyond jargon.

In the sheltered world of financial professionals the terms are omnipresent. We can be bullish of the weather, or bearish about Liverpool’s chance of making the Champions’ League. The stock broker in the pub can be bullish of the Doom Bar but a bear of the Continental lager. Where other than in the mind of a broker does ‘I’m a big bull of the iPhone6’ make any sense at all? Sadly, I am sure that everyone reading this will know exactly what that statement of purest gobbledegook means.

The origins of the terms are unknown. There are a number of theories, but no definitive answer. One that is definitely wrong is that they are references to the Bulteel and Barings banks. Both banks were inconveniently founded long after the words were first recorded. Another is that the original London Stock Exchange operated via a bulletin board, which was either covered in ‘bull’ notes or else was bare.

Possibly the most frequently purported but gruesome explanation is the creatures’ chosen method of death. A bull is supposed to gore upwards, while a bear paws downwards. Allegedly the most likely source was the tendency of traders of bear skins to sell to their customers before having the skins. They were therefore ‘short’ of skins in the hope that they could buy them cheaper from the hunters. A bear skin trader hoped that prices would fall. In the time of bear and bull baiting, the bull was merely the counterpart to the bear.

There is recent fascination with bull and bear markets. We read that such and such stock exchange or index has ‘entered a bear market’ or ‘is in a technical bull market’. For example, the 30% fall in Chinese equity prices (in 2015) apparently means that Shanghai is in a bear market. No matter that the index is still 80% up over the past year.

It is now accepted wisdom that a 20% move in an index constitutes a bull or bear market. Like Mr Benn’s shopkeeper, this definition has appeared as if by magic. There has never been a mathematical denotation of precisely what constitutes a bull or bear market. Nor should there be. This is the eternal battle to turn the art of investment into science. The words describe the market trend, the time when all you have to know (allegedly) is whether the market is going up or down.

Warren Buffet, never short of a deft turn of phrase, described a bull market as a rising tide that floats all boats. When the tide goes out, in a bear market, you find out who is wearing trunks.

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