Bulls and Bears:
To be honest, I was a little bit confused when the financial advisers I work for started talking about bulls and bears. Amazingly, they weren’t too surprised that I had no idea what they were talking about. With a background in English Studies, I’m not exactly the usual candidate to be surrounded by mathematical geniuses. Thankfully, they take me with good humour (and, A LOT of patience).
Always eager to explain away any kind of financial confusion, they quickly brought me up to speed. They were talking about the stock markets, of course! I don’t expect others to be as naïve as me (I’m pretty special!), but I do wonder just how many know why those two particular animals are used?
Apparently, it’s due to the way they attack their opponents. Bulls thrust their horns up in the air, while a bear swipes its paws downwards. Following this logic, some bright spark decided that if the markets trend is up, it’s a bullish market. If the trend is down, it’s a bear market. As such, bulls and bears are constantly embroiled in a battle on the stock markets.
How has the Bulls and Bears battle played out in the past?
Investment is a long-term game. And from time to time, the stock markets do experience periods of decline. That is what we’re seeing at the moment amidst fears around Covid-19 and its impact on the economy.
These ‘Bear’ markets are indeed a fact of investing, but it’s also a fact that they do end. Historically, investors that weather these downturns have eventually been rewarded for their resolve, with Bull market rebounds that have more than made up for the falls. Yet that’s little reassurance in such unsettled and unprecedented times. It is, however, why financial advisers will likely be telling you to avoid panic selling.
The following chart shows the performance of the global stock market between 1900-2018. A bull market denotes an ascending returns plot stemming from the lowest close after the market has fallen 20% or more, to the next market high. A bear market is represented by the opposite – beginning at a high close and descending 20%.
To see the enlarged version, please click here to download the pdf version of this graph,
What this tells us
While past data cannot predict future return, it does provide consolation in showing the cyclical nature of the markets. It also shows that bull markets tend to last longer and generate returns of far greater magnitude than the bearish counterparts.
For those whom periods of decline hit hardest, the good news is that bearish markets do not tend to last long, with even the Global Financial Crisis of 2008 spanning only 1 year, 4 months. While we’re on the positives, historically, bear markets have also proven to present good buying opportunities for those who can invest long-term.
So, when it comes to the stock markets, periods of ups and downs (bulls and bears) are perfectly normal. I think it is fair to say that what has made the recent downward trend so dramatic is the speed at which it came, and the severity of the drop in so short a time. However, if history is any proof then it’s important not to panic and exit the market when these crises arise as this would realise actual losses and you could miss out on the potential gains from the following bull market.
It’s easier said than done when your financial future is on the line, and all the news seems bad. Just remember that sensationalism sells and in times of crisis, your financial adviser remains the best person to speak to. They will be sticking to proven investment principles and thinking beyond any hysteria-induced financial press.
The most important thing, as they will tell you, is to not let fear take control; and trust that patience and calmness will ultimately deliver reward.
If you would like to speak to an independent financial adviser, please do call us on 01243 767 469. Alternatively, you can email us from our contact page, and an adviser will be in touch.