Stocks: What are the Bulls and the Bears?
The Bulls - A bull market is when everything in the economy is great,
people are finding jobs, GDP is growing, and stock
prices as a whole are moving upward, although the rate at which those increases
occur can vary widely from bull market to bull market. Things are just
great and 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 you believe that stocks
will go up, you are called a "bull" and said to have a "bullish outlook."
Well-known bull markets began in 1923, 1949, 1982, and
1990. Growth stocks usually do well in a bull market.
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. Some people try to make money in this situation when
stocks are falling using a technique called
short selling. When you are pessimistic about the stock market and believe
that stocks are going to drop, you are called a "bear" and said to have a
"bearish outlook." The most recent bear market began in 2000. Blue chip value
stocks usually do well in a bear market.
Chickens and Pigs - 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.
Pigs are high-risk investors looking for the one big score in a
short period of time. Pigs buy on hot tips and invest in companies without doing
their research. 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 pigs, as it's often from their losses that the bulls and bears
reap their profits.
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 pig.
Make sure you don't get into the market before you are ready. You should never invest in anything you do not understand.
There is an old stock market saying that goes:
"Bulls make money, bears make money, but pigs just get slaughtered!"
Two main ways to analyze stocks:
Technical analysis - Technical
analysts study trading histories to identify price trends in particular stocks,
mutual funds, commodities, or options in specific market sectors or in the
overall financial markets. They use their findings to predict probable, often
short-term, trading patterns in the investments that they study. The speed (and
advocates would say the accuracy) with which the analysts do their work depends
on the development of increasingly sophisticated computer programs.
Fundamental analysis - Fundamental analysis is one of two primary methods
for analyzing a stock's potential return. It involves assessing a corporation's
financial history and current standing, including earnings, sales, and
management, as well as the strength of the corporation's products or services in
the marketplace. A fundamental analyst uses these details as well as the current
state of the economy to assess whether the stock is likely to increase or
decrease in value in the short- and long-term, and whether its current price is
an accurate reflection of its value.
So, why do stock prices change? In short term horizon,
there could be many different reasons. Some believe that it isn't possible to predict how
stocks will change in price while others think that by drawing charts
and looking at past price movements, you can determine when to buy and
sell. The only thing we do know as a certainty is that stocks are
volatile and can change in price rapidly, and
in the long run, stock price will mimic it's earnings.
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