Understanding the Bull and Bear Markets

by Darwin on November 27, 2013

Even if you do know a little bit about investing, you may not be totally clear on what the difference is between bull markets and bear markets. If you are planning on investing in the stock market, though, it’s important to know these terms, as they are pertinent in your choice of when to buy and when to sell stock.

Once you understand these stock market basics, you’ll feel more comfortable making investments yourself or talking to your stockbroker about what’s going on with your money. Read on to learn more about bull and bear markets, and what they mean to your investments.

What is a Bull Market?

If the market is a bull market, it is time to sell. Things are looking up. Values are increasing. During a bull market is usually when you are going to get the most money out of an investment. A great way to remember this is imagining a bull attack. As it gores its target, it rears its horns up. Horns up, market up, sell. How can you tell it’s currently a bull market? Keep an eye on the prices. Rising prices are great indicators of a bull market. However, even if you see rising prices, a bull market is typically identified by a rise of at least 20 percent.

Other indicators include economic growth, decreases in unemployment, and GDP increases. Someone with a bright and positive attitude toward these things has a “bullish” attitude or outlook. Don’t leave those rose-colored glasses on too long, though. It is entirely possible for a bull market to take a nosedive if stocks become overvalued, so it is important to be wary.

What Should I Do in a Bull Market?

Bull markets are great times to make riskier investments. Investing in traditionally dodgy sectors, such as energy, could yield high reward. However, you still need to proceed with caution. Even though bull markets are the perfect times to make those leaps of faith, you should pull in the reins when it comes to international markets that are experiencing civil or financial turmoil.

Focus on the quality of the stock you are purchasing or selling rather than the quantity, specifically look at the potential quality of the stock you are buying. Stocks hit hard in the bear market show the highest returns when the market shifts and starts to show bullish tendencies.

What is a Bear Market?

A bear market is the opposite of a bull market. Instead of champagne wishes and caviar dreams, stocks in a bear market are heading downhill. Bear markets are named as such because when a bear attacks, he swipes downward and tears his victims limb from limb. For it to technically be a bear market, prices have to fall by at least 20 percent.

While the very beginnings of bear markets are great times to sell, right before stock values start to drop, they’re prime time to buy. They are sometimes caused by a saturation of overvalued stocks during a bull market. The indicators of a bear market are opposite of those indicating a bull market. The economy is slipping, stock values are decreasing, and unemployment is rising. Things aren’t looking good.

What Should I Do in a Bear Market?

Even though the economy has generally fallen on hard times during a bear market, you should try and invest in more safe stock. Once the market starts to shift up, you’ll be in a much better position to sell and turn a profit. That’s not as easy as it sounds, though. It’s hard to determine what stocks are going to soar when things start looking up.

It’s wise to make safer investments during a bear market. Minimal risk sectors include commodities and other things people can’t live without, such as food and oil. People can live opulent lifestyles in a bull market, but when a bear market strikes, all that opulence goes out the window. People who have more of the bear attitude are typically not as optimistic as bulls.

While selling during a bull market and buying during a bear market seem simple, your most important investment is that of a stockbroker. Lots of investment companies offer excellent services. There are many trusted firms out there, but if you visit Fisher Investments at their Washington address, you will walk into knowledgeable advisers and excellent service.

Are Bulls and Bears All There Is?

Bulls and bears are everywhere, but there are some other animals running around as well. Honorable mentions are chickens, who are afraid to lose any of their money, and pigs, who will risk it all. The meaning behind chicken is obvious. They are too afraid to take huge risks that could reap huge rewards. Pigs are called such because they are typically greedy and impatient.

Now that you know what kind of markets and investors are out there, which do you think you most align with?

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