There is no bull about it. The language of the financial industry can be more than a little confusing. Adding some animals into the mix doesn’t help.
To better understand the marketplace overall, it is ideal to comprehend the unique vocabulary used by investors and advisors alike. Let’s dive into the strange “zoo” involved with the stock market, starting with a Bull Market.
Defining a Bull Market
In the most basic of definitions, the bull market is when the economy is in a stable and optimistic state. Typically it is designated by low unemployment rates. Most investors hope for the market to remain in the bull state.
A bull market occurs when prices rise. Individual stocks, entire industries, or even the market as a whole can be in a bull market state.
By The Numbers
Statistically speaking, the term bull market applies when the trending prices rise 20 percent or more over a period of time. It is a time in which stocks can reach record highs.
There is no set amount of time that a stock, industry, or market must stay in the space, but most often it is over the course of several days or weeks.
Bull in the Stock Market
In its simplest terms, a bull market describes the stock market when prices are rising. It can refer to the entire stock market, a specific country’s marketplace, or even a specific individual stock.
In slightly more technical terms, a bull stock (or a bull market) is one that has risen 20 percent or more in recent history. If a stock was trading for the last several weeks at $1, for instance, and now is trending all this week at $1.20, it could be considered a bull stock. If the entire market was trending this way, it would be a bull market.
The Perception of Bull
While this all sounds like a lovely math problem, the concept behind the “bull market” goes much deeper. After all, the entire market of stocks is based on perception. And, when things are in a “bull” state, there is a positive perception and outlook of the financial state of the world.
Bull markets tend to come with optimism. Investors begin to think that the market is looking good. Prices are rising, and increasing stock prices means an increased faith in the market.
There is high investor confidence during times of a bull market. Those trading will often be gaining money and may even consider selling stocks, as they are at all-time high prices. There will be an overall positive vibe across the financial markets.
Bulls In the Economy
A bull market is also a time of economic prosperity. It is typically marked by periods of lower unemployment and a booming economy.
Due to these factors, investors may react in two different ways. Some brokers will recommend the sale of stocks at this point. While it is never wise to make quick, rash decisions when handling the stock markets, it can be advantageous during a bull market to sell some stocks that may not reach these levels again.
Alternatively, many will view the market as a living and breathing space, which is always going up and down. They may enjoy the prosperity and skim slightly off of their earnings, without making drastic changes. The market is in a good place, and there may not be the reason to react at all.
Your individualized market strategy will depend greatly on your goals, timeline, age, and investing amount. It is smart to work with a financial advisor to create your investment strategy.
Bull Markets and Stock Prices
If stock prices increase, and the trend continues, a stock market can experience a bull market. The length of time does not have to hit a required amount to consider the upswing of a bull market or stock.
Again, these downturns can be to particular stocks, an industry, or an overall market as a whole. In bull markets, the price of stocks is on the up and most stocks are increasing in value.
Bull and Bear Markets
The opposite of a bull market is its counterpart: the bear market. A bear market, as you may have guessed, means that the average prices are dropping. With falling prices of an individual stock, the industry as a whole, or an entire marketplace, a bear market is denoted by a 20 percent decrease in prices as opposed to its previous norms.
A Bear Market Vibe
The bull market is desirable and denoted by optimism and a bright view of the future, while bears are considered a concerning time, where investors become more conservative with buying. Down markets don’t have to become bears. The stock price over time will be the only indication of a sustained period.
Bear Market’s “Correct”
Oftentimes, when a bear market slows the economy, and prices are at all-time lows, there is a reason. Take for example the worldwide pandemic of COVID-19. One of the stock market’s shortest bear markets occurred for just 33 days, from Feb. 19, 2020, to March 23, 2020. The bear did not even make a two-month period.
Due to the panic that the illness caused, there was a shocking and rapid drop in stock prices worldwide. Thankfully, as work found ways to be done remotely, the precautions of masks and quarantine mandates began to help, and the market made what is typically called a correction.
A correction does not necessarily mean that a bear turns into a bull. Instead, it returns to a more “normal” state. A market does not have to be strictly bear or bull. It can just be in an average and stable state, without major change.
The Bull Market History
Often to understand the marketplace, it is smart to research the past trends and history of a market. Let’s dig into some of the historical markers of the bull markets.
A Quick Recovery Means Bigger Bulls
For example, the history of the past 12 bull markets shows that those that bounced back from bear markets fastest also lasted the longest, on average. Only four of the past 12 bull markets did not make it to 1,000 days. The remaining bulls lasted from four years (October 1957) to nearly 11 years (March 2009).
Some investors explain this as bull markets that return more quickly as “an indication that investors had less uncertainty and more conviction in an economic and earnings recovery.” In other words, it wasn’t as scary as they thought.
The Start of a Bull Market
Market research may vary depending on who you ask. Largely, there is debate about the starting time of a bull market.
For example, if a stock market plunges 50 percent, then recovers 20 percent, by definition that stock is now in a bull state, as it has risen 20 percent or more from recent averages. However, those same stocks had a “deflated” average cost due to recent drops.
Should they be considered entering a bull state or not? Some investors consider these bear markets to be a false sign of true “rising” prices.
A Great Debate: A Example
To better understand this issue, let’s make up an example. Jane sells lemonade. For the sake of argument, we will assume this lemonade is a traded stock value. It sells for $1 per glass. It has sold at this rate for a year, and stabilized at the same rate for the entire time. It was neither in a bull nor bear state.
Recently, Jane’s lemonade, however, suffered from a bear market plunge. Due to business changes, she was forced to lower her rates to $0.50. This is half the price (or a 50 percent) reduction in the lemonade (or “stock” for the sake of our example) value.
After a sustained period of time, we will call three months, Jane is able to increase her cost per glass up to $0.75. This is great news and is showing that Jane’s “stock” value has increased. By definition, this added 25 percent in value can be called a “bull” state of the stock.
However, since the price initially and over a sustained period of time was previously $1, is it fair to call this a true “bull” in the value? In terms of overall trends, the price is still down 25 percent from its original and projected values.
The Longest Bull Market
Because of this debate, there can be some discrepancy in what is and is not the start of a true bull market. Additionally, because neither the bear nor bull markets come with a strict definition of a timeline (how long a stock or market must be in the state to be considered “official”), there is plenty of room for disagreements.
Regardless, one of the most agreed upon longest bull markets was that which ran from March 9, 2009, as the beginning of the bull market, which then ran for 3,453 days, closing Aug. 22, 2018. This record-breaker took the throne surpassing the previous record bull market that ran from October 1990 to March 2000, nearly a full decade-long run!
The longest bull market, ironically, came after what many refer to as the Great Recession. At the end of the U.S. housing bubble, in addition to a global financial crisis, companies across many industries were feeling the burn.
Investing had slowed, and
The Average Bull Run
Bear and bull markets vary in their typical timelines, as well. No two animals, after all, are alike!
The average bull market lasts 8.9 years, with an average cumulative total return of 468 percent!
On the contrary, the average bear market d lasted 1.4 years with an average cumulative loss of dropping 41 percent.
As you can see, overall the bulls and bears tend to result in gains. The typical bull market outlasts bear markets by 7.5 years. In other words, when viewing an overall market commentary, that is a lot more bull than bear.
Bears Are Still Scary
The term bear is still an appropriate name. Bears can cause terror.
While the time periods are nowhere near equal, the fact remains that great loss can be caused by the bear market. The period of financial crisis can do its damage. Things like a housing crisis, major unemployment, and withdrawals from the market entirely can happen for an extended period.
Take the 1950s. With an entire generation scarred by the market crash of 1929 and the Great Depression of the 1930s both occurring within their lives, most people in the 1950s stayed away from stocks entirely.
It was 1954 before the Dow Jones Industrial Average (DJIA) surpassed a 1929 peak, a full 25 years after the initial crash. Clearly, in this case, past performance and audience insights majorly impacted public perception, and thusly investment decisions across the board.
Investing in a Bull Market
There are, of course, countless tips and tricks that everyone from your hairdresser to your 401(k) investors will provide you about the stock market, especially in tough times. During a bull market, your investment strategy may alter somewhat, depending on the length of your investments, your end goals, and overall funds involved.
The Long Haul
Investments are typically best left in the market for long periods of time. While the trends may come and go, with bear and bull market values changing month-to-month, or year-to-year, it is often best to invest long-term and develop a “wait and see” attitude about future results.
Those who panic sell during a bear market, or opt to dump a stock in the bull market assuming the price will never get higher, can often miss out on long-term gains favoring near future results.
Financial decisions are best left to watching the markets over longer periods of time. As we’ve noted in our stats, bear markets often come and go. It is the investment decisions you make over time that will boost your profit.
A Diversified Portfolio
Another strong tip in determining how to invest in a bull market is to be sure that all your money is not sitting in the same basket. In other words, if you are banking your investment decisions strictly on one unique industry, you are limited by the changes in that industry.
If you have high hopes for a particular booming industry, it is OK to invest. However, deciding to put more money in one space may limit growth in another.
Many investors instead opt to operate a diversified portfolio when handling personal finance. Even focusing on the stock index alone is not advisable. Having funds in different options such as mutual funds, IRA, CDs, and even cryptocurrency can give you options.
This way, as a bear or bull market occurs, you will see a change in one investment, but not stress too much as stock prices change day-to-day. You will have the security of knowing you have options in your investment portfolio and can invest in multiple markets to improve your chance at a successful personal finance package.
Rely on Automation
If even the thought of the stock market approaching a major change sends you into a tizzy, it may be time to consider a robot to do the legwork. No, Rosie from The Jetsons is not going to wheel into the rescue (but, that would be cool, right?!).
Instead, the panic of a financial crisis can be muted by a technology called a robo-advisor.
Much like it sounds, the use of an automated investment advisor can be accomplished without a human being. Instead, a robo-advisor makes an easy and affordable way for especially new investors to be hands-off with an investing approach.
Some examples of robo-advisors, like Betterment and Wealthfront, also offer low-cost diversification of your portfolio, and will automatically adjust your investments regularly, known as rebalancing, so you can sit back and know that preprogrammed algorithms are keeping your accounts balanced at all times, no matter the comings and goings of bear markets and bull markets.
Leave Emotions Out
Another wise piece of advice when approaching even bull market territory is to check your emotions at the door. Bull markets come and go. Bear markets come and go. There is always going to be a fluctuation in the stock market. That is the nature of the beast, no matter which animal currently represents it.
But no matter the creature, bull, and bear markets are not forever. Past performances can give you a glimpse of the history of the marketplace as a whole. You can’t just take a few weeks and decide you know all of the ins and outs of the space.
This doesn’t mean you can’t make choices, whether you opt to invest on your own or make investment decisions with a professional. You get to have a voice in your markets of choice. However, you want to remember to keep a level head.
Emotions, especially bears and bulls of the marketplace, can trigger investors to make choices they would not otherwise make.
The Future of Bull Markets
As most investors are aware, the future of the financial industry is always unknown. We can analyze data until our eyes cross, but at the end of the day, anything can happen. Bull markets are not going to go away. But, neither are the bears.
Bull markets are also not a cause for panic or rejoicing. Overall, the stock market has typically balanced back out and provided a proven method for investing, especially for those in it for the long haul.
Remembering not to panic, to remove emotions, to spread and diversify your funding, and to keep a level head are key takeaways. In the end, ups and downs are going to occur, but there is no need to sell it all or buy over your means. In a bear market or bull, there will be change, and there is no need to make a drastic change.
While it is wise to keep tabs on your investment dollars, it is not a great idea to pull your stocks back and forth from day to day. Investments take time. Bull and bear markets will come and go. And a bear market is clearly not the end of the world.
While it is important not to fret about daily change, it is not to say you should not stay informed. Even with automated advisory services, professionals on your side, or tools for self-handling of your portfolio there is no reason to just bury your head in the sand.
Instead, stay tuned to the changes in the marketplace. Just don’t react, full of emotion, at the slight inkling of change.