Bulls and Bears

"Blue Horseshoe loves Anacott Steel."
--Bud Fox (Wall Street)

Nearby the New York Stock Exchange in downtown Manhattan sits the Charging Bull, an enormous bronze statue meant to symbolize American can-do spirit, particularly that of New Yorkers. Its placement in the Financial District is no accident, as 'bullishness' has been a hallmark of the sentiment that drive Wall Street.

If you are bullish, then you are optimistic. You think prospects are good and prices are bound to go higher. Bullish behavior tends to power markets higher over time.

Opposite of the bulls are the bears. If you are bearish, then you are pessimistic. You think prospects are bad and prices are going lower. Bearish behavior tends to power markets lower over time.

How did the bullish and bearish terminology come about? No one knows for sure. One theory relates to how these two animals attack opponents. Bulls tend to thrust their horns up in the air, while bears tend to swipe down, thus creating metaphors for up and down price behavior in markets.

Because human beings tend to be optimistic by nature, bullish sentiment tends to weigh heavily on financial decision-making. It is also celebrated. It probably should not be surprising that there is no bear statue standing near the Charging Bull in downtown New York.

The bull/bear symbolism carries important implications for investors. One is to recognize that human tendency toward optimism will naturally make you--and others--bullish. Financial markets thrive on bullish sentiment, the purchase of securities, and the higher prices that go with it.

Natural tendency toward bullishness, however, means that we tend to overlook the downside of investment decisions. It can be hard for us to recognize and factor in the risks.

Recognizing these implications, investors can improve their decision-making. Suppose that you are interested in buying Verizon Communications (VZ) stock. As a bull, you think VZ stock is a good deal here. But in order to buy VZ stock, someone else must be willing to sell shares to you. Why is the seller bearish? Before you buy, it is a good idea to do some research. Explore the bearish arguments. What are the reasons for selling VZ rather than buying it? By comparing the bearish arguments to your bullish ones, you have created the basis for a more balanced, informed decision.

A smart cookie I know likes to call this "seeing both sides of the trade." To me, it seems like critical thinking.

position in VZ