Faith in the market and faith in our abilities as adequate investors are two very difficult subjects to write about when the market seems to continuously slide "downhill." Within the past two plus years, basketfuls of adverse financial news and other problems pushed investors away from the market into other forms of investments. However, things seem to be more positive lately. Whether these upward movements are flukes or the result of investor and business resilience is one topic. The other subject - one we'll discuss today - involves how to describe a Bear or Bull market to our children.*

When I first explained "Bear" and "Bull" markets to Cora, my analogy was simple. The Bull charged ahead, stomped, snorted, and to heck with the china. The Bear, on the other hand, clawed through frozen terrain for sustenance and hid away in hibernation for a good part of the year. Cora said at that time, "Both of them are scary." I agreed. Then, I realized I blundered in the way I explained these terms to my daughter. These terms, in my opinion, are aggressive and illogical descriptions of certain market movements. If we understand the origins of these terms, and can convey to our children what they really mean, then the market might not seem so intimidating.

The first printed evidence of the use of these terms is found in Thomas Mortimer's book, Every Man His Own Broker, Or, A Guide to Exchange Alley, written in the late 1700s. At that time, "Exchange Alley" was Wall St., and Mortimer was an economist and an astute observer of human behavior. Today, his words are a small investment in themselves, worth about $450 for the eighth edition written in 1775 (through Rulon-Miller Books). For a less expensive explanation, we can plug the author or title of the book into a search engine and come up with a few articles about the history of these terms based on Mortimer. Or, if you have access to interlibrary loan, later printings of this book are available in about thirty libraries worldwide.

Basically, Mortimer stated the Bull was an aggressive seller who looked "surly" with a "dejected, gloomy aspect and moroseness," and the Bear "is as much a monster in nature, as his brother brute in the woods." It seems what these Bears and Bulls did was not as important as their countenance. I think Mortimer sought humor in his descriptions (even if it was sarcastic), and it seems these terms - now over two-hundred and twenty-five years old - are antiquated models within a modern, global market. The "Alley" is now a world-wide road that reaches women and men. So why are these terms still used today?

According to many dictionaries, "Bear market" now describes a prolonged market downturn of over 20%. A "Bull market" describes a prolonged period of rising stock prices. The definitions I found for the Bull market did not include any specific percentage increase, but these definitions stated that the Bull market was the opposite of a Bear market, so we might presume the Bull market also includes a 20% increase. Do these percentage increases mark a true Bear and Bull market, or are they just part and parcel of business cycles? We looked up the term "business cycle," and found that it meant the same as an economic cycle. The business or economic cycle refers to a recurring cycle of expansion and recession based on time and economic factors. It appears the only difference between Bear and Bull markets and business cycles is the precise percentage factor. Both are based on time and economics, and both describe recession and expansion in any business market.

A glance at last week's article will show that many cycles occur as a reaction to various events, news, and responses from clients and audiences. The life-span of a product or service will also affect the market cycle of that product or service. This last example impacts the market even more if the new product replaces an older product. For example, when home computers hit the market about 1990, typewriters became almost obsolete. Companies that manufactured typewriters, not surprisingly, became more technical in nature and many of these companies began to produce computers.

So how do we explain Bear and Bull markets to our children without frightening them half to death? Just explain that meanings of words change over time. Let them know about how these terms originated (as descriptions of certain traders), and that they eventually evolved to describe the upward and downward movement in the market. Have them draw pictures of what Bears and Bulls might look like if they were traders on Wall St. After they have a good laugh, then they might be ready to understand that the market is open to change, and this change is not always aggressive or even negative.

Cycles, after all, are devices that take us from one point to another, up and down hills and sometimes over what appears to be flat and boring landscapes. This exercise might help our children understand that investments don't require us to be Bears or Bulls, but another animal altogether - a wise investor.

Until Next Week,
Linda Goin

* This age group would be between six and ten; however, any age group would benefit from a discussion of business cycles along with the Bear and Bull markets.