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Tuesday, October 28, 2008

Where did the bull and bear market get their names?

First of all, let's remember that bears are sluggish and bulls spirited and burly. The terms are used to describe general actions and attitudes, or sentiment, either of an individual (bear and bull) or the market. A bear market refers to a decline in prices, usually for a period of a few months, in a single security or asset, group of securities or the securities market as a whole. A bull market then is when prices are rising.
The actual origins of these expressions are unclear. Here are two of the most frequent explanations given:

1. The terms bear and bull are thought to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down. These actions were then related metaphorically to the movement of a market: if the trend was up, then it was considered a bull market, and if the trend was down, then it was considered a bear market.

2. Historically, the middlemen in the sale of bearskins would sell skins they had yet to receive. As such, they would speculate on the future purchase price of these skins from the trappers, hoping they would drop and thus increase their own profits due to a spread - the difference between the cost price and the selling price. These middlemen became known as "bears", short for bearskin jobbers, and the term stuck for describing a decrease in the market. Conversely, because bears and bulls were widely considered to be opposites due to the once-popular blood sport of bull-and-bear fights, the term bull was used to describe actions or sentiment that is the opposite of bears.

Wherever the term came from it is important for investors to know the difference between the two as it will greatly affect their returns. For example, it is unwise to be a bull in a broad-based bear market, because prices will be falling while you're hoping they will rise and the value of your portfolio will fall. Also be aware that it is possible to profit in both markets and that there are in fact two sides to the stock market - and up and a down one. Thus, like their namesake, never turn your back on a bull market or a bear market.

HAPPY TRADING FOLKS............Zhuge Liang

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