Bullish vs. bearish investors: What’s the difference?
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If you follow the stock market at all, you’ve probably heard plenty of references to bulls and bears. But what do these animals have to do with investing? Let’s take a look at what people mean when they say someone is bullish or bearish.
What does it mean to be bullish?
When someone is bullish, it means they are expecting prices to rise over a certain period of time. The term applies to broad market indexes such as the S&P 500, specific industries or even entire asset classes such as real estate or commodities. It might help to think of a charging bull raising its horns to remember that to be bullish is to expect prices to charge higher.
A bull market has no specific definition, but is a sustained period when prices are rising and generally expected to keep doing so. Typically, a bull market is thought to have occurred when prices have risen 20 percent or more off a recent low. A bull market can last for years as it did with stocks starting from the lows of the financial crisis in 2009 until the global pandemic hit in March 2020.
What does it mean to be bearish?
On the other hand, to be bearish means to expect that prices will be falling over a period of time. This term also applies to any financial asset and could be used to describe an outlook for an individual stock such as Apple, or stocks in general. To help remember that bearish means falling prices, think of a bear clawing down on its prey.
A bear market is essentially the opposite of a bull market, meaning that it is a prolonged period of declining prices. A bear market generally occurs when prices have declined by at least 20 percent from a recent high. Bear markets have historically not lasted as long as bull markets in the stock market. The U.S. stock market entered a bear market in March 2020 when prices fell more than 30 percent in just a matter of weeks. But the recovery was nearly as swift, with a new bull market starting later that year.
How to invest during bull or bear markets
If you could anticipate when bull or bear markets were going to begin and end, you could adjust your investments accordingly to take advantage of the changing conditions. The reality is that once bull and bear markets become clear to investors, it’s probably too late to take advantage of the change.
For stocks, it’s important to remember that these are part of your long-term investment plan and you’ll experience both types of markets during your investing life. Stocks tend to go up more than they go down over time, so it’s likely that you’ll see more bull markets than bear markets. Consider holding low-cost index funds for the long-term and know that ups and downs are to be expected.
One approach that can help you take advantage of the market’s ebbs and flows is known as dollar-cost averaging. By making consistent contributions and investments over time, you’re able to buy more shares when prices are lower, and fewer shares when prices are higher. These contributions could be part of a workplace retirement plan like a 401(k) or your own traditional or Roth IRA.
Bottom line
Bulls think prices are going higher, while bears think they’re headed lower. Try not to get caught up in trying to anticipate when a bull or bear market might begin or end. Think of your investments as part of your overall financial plan and do your best to take a long-term view.
Learn more:
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
Value and quality stocks are in favour, and income and momentum are out
Investors are feeling bullish and in the mood to bargain hunt for shares as markets recover from the pandemic, a new study reveals.
Nearly two thirds of financial advisers say investors are keen to put money in cheap ‘value’ stocks over the next 12 months, and around half say they want quality companies with strong balance sheets.
Value stocks typically outperform at turning points like the one markets are experiencing now, explained Schroders as it releases its latest research.
Looking ahead: Investors are in the mood to bargain hunt for shares, but are also looking for quality
Growth companies, which tend to grow their business and increase revenue at a faster rate than other firms but may make lesser profits, are less favoured right now, due to the expectation that interest rate rises are on the way and will hit their prospects, adds the investment management firm.
This stands in contrast to cheap value company shares that have seen their price and businesses dented by the coronavirus crash and lockdowns but can start making money again as restrictions ease, for example, cinemas, airlines and hospitality firms.
The growth investing story has been dominated by US tech stars in recent years, but examples of UK-listed growth stocks include Ocado, Asos and Boohoo.
Nearly half of financial advisers expect market volatility to increase over the next five years, which would also advantage value stocks in a ‘cyclical rotation’ away from growth stocks.
Around 45 per cent of advisers say equity investors are still interested in putting money in growth and small cap stocks over the coming year.
But far fewer say investors are looking to invest for income or want to follow a ‘momentum’ strategy, according to those surveyed by Schroders.
See below, and scroll down to find explanations of these investing goals and styles.
Current trends: What kind of stocks do investors want to put their money in?
The research also found that more than 50 per cent described the sentiment among most of their clients as bullish, meaning positive and confident.
The number saying investors they dealt with were bearish, meaning nervous or negative about the market outlook, fell from 50 per cent last November to 8 per cent in May.
The breakthrough announcement of a Covid-19 vaccine with 90 per cent efficacy was made by developers Pfizer and BioNTech on 9 November.
Three quarters of advisers expect higher global growth over the next five years, while four fifths think there will be a significant take-off in UK growth in the same period.
Alex Funk: We are now starting to see confidence being restored
They also reported a drop in clients delaying their retirement due to concerns about reduced capital or income from 49 per cent in April 2020 to 34 per cent in May 2021.
Meanwhile, a separate Schroders survey among people who plan to invest at least £10,000 in the next year found that 58 per cent plan to save more after the pandemic than they did before, and this sentiment was strongest among younger investors aged 18-37.
Some 36 per cent of those surveyed said their savings plans were disrupted by job losses and furlough during the crisis.
Alex Funk, chief investment officer at Schroder Investment Solutions, says: ‘Following the impact of the pandemic on investor confidence, we are now starting to see confidence being restored and advisers are starting to seek new investment opportunities for their clients.
‘Although ongoing uncertainty and market volatility is expected to continue over the short-term it’s encouraging to see that advisers who reported that the number of clients who were delaying retirement due to concerns about reduced capital or income has reduced.’
‘From the acceleration of new trends, market rotations and disruption to the traditional growth sectors, this is a potentially exciting time.’
Number crunching: More than 50 per cent of advisers described the sentiment among most of their clients as bullish in the most recent survey
Investing trends explained
Schroders offers the following jargonbuster.
Value
A value based strategy is based on the fundamental analysis of companies, with a focus on valuation and balance sheet strength.
It involves buying stocks trading for less than their intrinsic value and selling them when they are trading above their intrinsic value.
This strategy is based on the belief markets tend to overreact to both good and bad news, thereby allowing value-oriented investors to take advantage of price distortions before prices revert back to fair, or intrinsic, value.
Over the long term, low-priced stocks (value stocks) have historically returned more than high-priced stocks (growth stocks).
What’s next? More advisers are positive about UK growth than about global growth
Quality
A quality-based strategy focused on investing in companies with durable business models and sustainable competitive advantages.
It aims to capture the potential premium that investing in high-quality stocks can offer over low-quality stocks.
Over the long term high-quality stocks, which typically have more stable earnings, stronger balance sheets and higher margins, will typically outperform low-quality stocks.
Small cap
A small cap strategy will focus on investing in companies with a smaller market capitalisation.
Over the long term small cap stocks, tend to outperform large cap stocks.
This reflects the greater ability of small companies to deliver outsized growth and the compensation that investors expect to receive for investing in stocks that may be less liquid than large caps or, alternatively, more susceptible to changing business cycles, defaults and volatility.
Growth
Alpha, focus, dynamic, optimal… What does this cryptic investing jargon actually mean? Find out here.
A growth strategy will focus on investing in companies with strong growth prospects.
This will often be extended by the concept of growth at a reasonable price (GARP) to ensure that stocks represent a reasonable level of volatility, yield and quality.
Companies that can grow their earnings at a faster rate than others will typically outperform.
Income
A distinct investment strategy targeting regular income.
Momentum
A momentum based strategy will aim to identify stocks that have a positive growth trajectory and give this a weighting in the decision to invest, along with the underlying fundamentals.
Market trends, for example rising or falling share prices, are more likely to continue than reverse.