Bullish vs. Bearish investors: what’s the difference?
If you follow the stock market, you’ve probably heard a lot of references to bulls and bears. But what do these animals have to do with investing? Let’s see what people mean when they say someone is bullish or bearish.
What does it mean to be bullish?
When someone is bullish, it means that they expect prices to rise over a certain period of time. The term applies to large stock indexes such as the S&P 500, specific industries or even entire asset classes such as real estate or commodities. It may help to think of a charging bull raising its horns as a reminder that to be bullish is to expect prices to be higher.
A bull market does not have a specific definition, but it is an extended period during which prices rise and should generally continue to do so. Typically, a bull market is believed to have occurred when prices rose 20% or more from a recent low. A bull market can last for years as it did with stocks from the lows of the financial crisis of 2009 until the global pandemic of March 2020.
What does it mean to be bearish?
On the other hand, being bearish means expecting prices to fall over a period of time. This term also applies to any financial asset and could be used to describe the outlook for an individual stock such as Apple or stocks in general. To help you remember that a drop means a drop in prices, think of a bear preying on its prey.
A bear market is essentially the opposite of a bull market, meaning it is an extended period of falling prices. A bear market typically occurs when prices have fallen by at least 20% from a recent high. Historically, bear markets have not lasted as long as bull markets in the stock market. The US stock market entered a bear market in March 2020 when prices fell more than 30% in just a few weeks. But the recovery was almost as quick, with a new bull market starting later that year.
How to invest during bullish or bearish markets
If you could anticipate the start and end of bullish or bearish markets, you could adjust your investments accordingly to take advantage of changing conditions. The reality is that once the bullish and bearish markets become clear to investors, it is probably too late to profit from the change.
For stocks, it’s important to remember that they are part of your long-term investment plan and that you will experience both types of markets over the course of your life as an investor. Stocks tend to rise more than they fall over time, so it’s likely you’ll see more bull markets than bear markets. Consider holding low cost index funds for the long term and be aware that there are ups and downs to be expected.
One approach that can help you take advantage of market ebbs and flows is known as dollar cost averaging. By making consistent contributions and investments over time, you are able to buy more stocks when prices are lower, and less stocks when prices are higher. These contributions could be part of a workplace retirement plan like a 401 (k) or your own traditional or Roth IRA.
At the end of the line
Bulls think prices are going higher, while bears think they are going to go down. Try not to get caught up in trying to anticipate the start or end of a bullish or bearish market. See your investments as part of your overall financial plan and do your best to take a long-term view.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past performance of investment products is not a guarantee of future price appreciation.