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The bear and the bull. An unlikely pair that has very little meaning in the real world but hold a heavyweight in the world of finance. The terms “bull market” and “bear market” are popular financial jargon. I came across this type of jargon when I first entered the industry, and if you’re reading this, then chances are you’ve come across them too.
So you’re probably wondering, what do two very different animals have in common? Also, what the heck do they have to do with finance? Below I will be explaining what these terms mean and where they came from.
A boom, a slowdown, peaks, troughs, bears, bulls. They may sound confusing, but these terms are all used to describe the same thing — market movement. They refer to how the market is behaving. Is it performing well or not? Lots of downward movement means the market is doing poorly, and lots of upward movement implies the market is doing well.
Each day the market will move one way or another — but it’s the long-term trends over several weeks or months that are of more significant concern. While there have been points in history where the market has trended downward for many months, it has always rebounded and has continued to climb upward.
A bear market refers to consistent downward movement in the stock market, specifically a market that has fallen at least 20% from its previous high. Bear markets have lasted as little as three months and as long as 20 months in recent history. In the last half-century, the largest bear market was the 2008 economic crisis, where the stock market fell by 51.93% off previous highs and didn’t rebound for over a year.
A bull market refers to consistent upward movement in the stock market, specifically a market that has risen by at least 20% from its previous low. Bull markets have lasted as little as 31 months and as long as 147 months or over 12 years in recent history. In the last half-century, the largest bull market was a run between the late 80s and late 90s that gained 582% from previous lows.
Below you can see a chart showing the length and time of current US bull and bear markets, although the Canadian markets closely mirror these. The average bull market outperforms and outlasts the average bear market, which has always recovered in the end.
The only issue with investing is managing the volatility, as short-term bear markets have happened and are likely to occur in the future. To do this, make sure you’re investing based on your risk tolerance and considering the time horizon of when you need your money, as you don’t want to be in a position where you have to sell when the markets are down.
While we often use the terms bull and bear to refer to the market as a whole and how the markets are performing in real-time, sometimes these terms can be used by investors to speculate, in other words, make predictions.
If an investor is “bullish” on the market as a whole or a specific stock or sector, that means they feel favourably towards it and feel it will outperform in the near term. Conversely, if an investor is “bearish” on the market as a whole or a specific stock or sector, they don’t feel favourably towards it and feel it will underperform in the near term.
Analysts often use these terms to make predictions about the industries or stocks they cover in their marketing materials or research reports. You may also hear them in casual conversations between investors.
You may be wondering, so why a bull and a bear? Why not a cat and dog? Tortoise and hare? The exact origins of this famous financial metaphor are unclear; however, two popular explanations are often used.
The first is based on how the bull and bear attack their opponent. The bull attacks by shooting its horns up into the air, while a bear attacks by swiping down. The other explanation is the history of selling bearskins and how they would sell the skins ahead of time. There may also be an explanation from the historical bull-and-bear fights.
Although the exact origins are unknown, the metaphor has undoubtedly held its popularity in the industry over time.
When I got my first job in the industry, the financial jargon felt like a new language. It can certainly be confusing at the start. A great way to feel more confident with your financial vocabulary is by reading more and often. I hope that my blog posts can help decode some of that language for you, but otherwise, books and financial news sites are a great place to start. I was lucky that my first job involved reading a lot of news and analyst research reports daily. Decoding those helped me tremendously, and with the online access available today, anyone can do the same. So don’t feel discouraged to ask questions or speak up too. Chances are you’re not the only one!
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