The Bulls, The Bears And The Farm

The Bulls

A bull market is when everything in the economy is great, people are finding jobs, GDP is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic, believing that stocks will go up, he or she is called a "bull" and said to have a "bullish outlook".

The Bears

A bear market is when the economy is bad, recession is looming, and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".

The Other Animals on the Farm - Chickens and Donkeys

Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets all together. While it's true that you should never invest into something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk.

Donkeys are high-risk investors looking for the one big score in a short period of time. Donkeys buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the donkeys, as it's often from their losses that the bulls and bears reap their profits.

What Type of Investor Will You Be?

There are plenty of different investment styles and strategies out there. Even though the bulls and bears are constantly at odds, they both can make money with the changing cycles in the market. Even the chickens see some returns, though not a lot. The one loser in this picture is the donkey.

Make sure you don't get into the market before you are ready. Be conservative and never invest in anything you do not understand. Before you jump in without the right knowledge, think about this old stock market saying:

Bulls make money, bears make money, but donkeys just get whipped!