Bull vs. Bear: What does it all mean?!
Us finance types like to throw jargon for simple explanations¹. A great example is a bull and bear market.
What does that even mean?!
By market, most people mean the S&P 500, which is a compilation of the 500 largest stocks in the US².
Simply put, a bull market is when the market is trending upwards. It’s euphoric and exciting because making money feels fantastic. A bull market ends when we enter a bear market.
A bear market is when markets have fallen 20% from the previous highs. The COVID Crash in March 2020 was our last bear market. A correction is markets going down -10%. (people throw that one out there too) A correction turns into a bear market when it hits -20%; until then it’s a garden variety sell-off.
Since 1942, we’ve had 15 bulls and 14 bears (can’t have one without the other). Data from First Trust shows the average bull market lasts 4.4 years and returns +154% over that period and the average bear market lasts 11 months and has a market loss of 32%.
That market insight is summarized by one of my investment idols Peter Lynch³: “Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”
People spend too much time worrying about the next crash, but most of the time the market is generally trending higher. We hate losing money more than we like making it. This is called loss aversion.
Going on TV and predicting the next crash feeds into the human psyche. But the crazy thing is predicting the market will go down is pretty much a guaranteed thing! It’s going to happen! I can also tell you looking at historical data that it goes back up too. You can show up every day and say the market will go down one day in the future. But you’re most likely going to have an opportunity cost of not participating in a bull market if you heed the advice of strangers on the TV.
99% of people can’t predict if we will have a bull or bear market in the short term⁴. The most important thing is to have a long-term strategy that you can stick with through either market type. Usually, that’s an appropriate split between stocks (the growth engine in your portfolio) and bonds (for downside protection) that you and an advisor have agreed upon.
Reach out with questions!
Footnotes:
- I don’t know why, but half of it is probably trying to confuse people so they don’t ask questions and find out what we do isn’t rocket science. If it isn’t options trading, then most of what we do doesn’t require physics-level math or intellect.
- Not exactly the 500 biggest. There are a few technicalities, but that’s a close enough definition for government work.
- He has some great investment books if you’re looking for recommendations.
- Would they be talking to me or you if they could!?
