The term ‘bull’ and ‘bear’ are often used in the investing world, but do you understand what they describe.
In general, these terms describe the working of the stock market, and it becomes crucial to understand these market conditions before investing as they may impact the investment. Talking about the ‘bull’ market, it is a market that is on the rise; while on the other hand, the ‘bear’ market exists where the stocks are declining in value.
A bear market is always more dangerous to invest in compared to a bull market. In a bull market, investors usually have trust that there will be an uptrend for a longer-term. While in a bear market, investors believe that the share prices will continue to fall. If you are curious to know the origin of these words, then you could think of a bull that attacks by bringing his horns upward and a bear that attacks by swiping his paws downwards.
We often use these terms while describing the trends of various securities such as bonds, stocks, and commodities. A bear believes that the price of an investment will fall in simple words, and a bull believes that its price will increase. The majority of the investors desire a bull market.
The investors believe that influences the stock price in a self-fulfilling prophecy, which means that the investors themselves create the circumstances of the market. For instance, in case of bull market, the investors themselves cause the price to rise and similarly in case of bear market, investors themselves cause the prices to fall. It is called a state of irrational exuberance when the prices of stocks fail to fall over time. In a bull market, an asset bubble is created where prices tend to increase till the assets’ supply resists a further price increase. At that point, investors start to sell in panic. As a result, prices begin to fall.
The real definition of a bear market is when the market prices fall by more than 20% for at least 60 days. During the beginning of the bear trend, investors’ confidence collapses, and they, in turn, further reduces the price. It can last for many years as well. The start of a bull market is indicated when the investors begin to buy the stocks, hoping that stocks’ prices will continue to rise, and this belief further increases the stock’s price.