Bulls and Bears: Who are these investors and how do they invest their money?

You’ve likely heard of the term or terms ‘Bulls and Bears’ describing two different types of investor sentiment, and of investors generally. They are as different as the Montogues and Capulets. But how are they different, why are they called these terms and how do they invest?

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Bulls and Bears: Who are they?

These terms are used in stock investing to describe market sentiment—whether investors feel optimistic or pessimistic about future price movements. Investors feeling optimistic are bullish but those feeling pessimistic are bearish and the terms bulls and bears describe them.

Investors in the former category believe the price of a stock (or the market overall) will go up. Those in the latter believe the price of a stock (or the market overall) will go down.

These terms are also used to describe markets moving one way constantly over a period of time – a bear market is usually one where stocks (or more specifically major indices like the S&P 500) have fallen 20% from their peak. There’s no equivalent ‘yardstick’ for bull markets.

How did these terms come about?

The term “bear” was used earlier than “bull.” In the 18th century, there was a proverb about not “selling the bear’s skin before one has caught the bear.” It referred to speculators who sold stock they didn’t yet own, hoping to buy it later at a lower price—essentially, short selling, which is inherently bearish.

“Bull” came later as a natural counterpoint to the bear.

If you don’t want to take our word for how ‘official’ these terms are in investor terminology, just consider that there is a giant bull statue outside the NYSE.

How do they invest?

If you’re bullish, you expect the market (or individual stocks will go up) so you are focused on buying low and selling high. You may employ a ‘buy and hold’ strategy – involving purchase a stock expecting it to rise in value over time.

They may use either growth investing (Focus on companies with strong earnings potential, even if they’re not yet profitable or only modestly so) or momentum trading involving buy stocks that are already trending up, expecting the trend to continue. Alternatively, they may buy call options to profit from upward movement with limited downside.

Multi-asset portfolios may have exposure to alternative investments like crypto, private equity and REITs. They may also balance their stock allocation between growth and cyclical as a way to minimise risk.

Alternatively, if you’re bearish, you’re expecting prices to decline, so you’ll use strategies that profit from downward movement or protect existing investments. So the strategies employed may include short selling involving borrowing a stock just to sell it and buy it back at a lower price and keep the profit. They can also employ put options which increase in value as the stock price drops. They may also use inverse ETFs or even buying defensive stocks.

A hypothetical multi-asset portfolio built by a bearish investor may also have exposure to bonds (especially government bonds), gold and other commodities and maintain cash for optionality and protection. It may have 50% between these and then say 30% defensive stocks with the balance put/short options.

Always in one or the other?

Now, few investors are permanently in one camp. There are a few, but not many.

A Mentally drained bear's tale
byu/Disastrous-Muffin743 inwallstreetbets

Investors may change strategies depending on whether they think the market is in a bull or bear phase and change strategies accordingly.

Conclusion

We hope we’ve given investors a broad overview of these the descriptions of bulls and bears for investors unaware of these terms.