| Not to sound contrite…but I just don't understand how they picked these two animals to define the upward swing and downward fall of the stock market. The Motley Fool has helped a little with their description of both of these symbols, but I'm still left scratching my head.
Their book, You have More Than You Think, offers a very good description of both a bull and a bear market. I'll attempt to paraphrase each and you decide if these are good analogies.
A bull market describes an upward mood of the stock market. Companies are enjoying good profits and people are investing their money happily in these companies. There is an overall optimistic mood towards the economy and the stock market in general. Now, the Fool has asked that we picture a bull with its long horns. When a bull strikes at something, it rears its head in a swing and pokes upward. Thus the term: a bull market. Horns up…stock market is going up.
A bear market on the other hand, is typically noted by a doom and gloom scenario - a pessimism, if you will. Investors are jittery, the market is unstable, and there isn't an air of optimism about the economy. Okay…here's the analogy. A bear, when it stands on its hind legs to attack, strikes downward with its huge paws. Downward swipe…stock market is going down. Thus the term: a bear market.
With all due respect to our forefathers of the stock market…is that the best they could do? Couldn't they have thought of something a little more analogous symbolically? What were they thinking? A bear and a bull?
No matter what they call it, my further investigation into both of these concepts proved to be very informative. This is especially note-worthy, right now, because our economy here in the United States has enjoyed a massive expansion since the first of this year indicating I believe a very strong bull market. Everything was going up. People and companies were very optimistic. The horns on the bull were striking upward.
My current understanding, however, is that our optimism is getting a little cloudy. The recent drop in the Dow, NASDAQ, and S & P 500 appear to reflect a general decline and a move downward. The paws of the bear are striking down. Indications of a possible "bear market" perhaps?
Bears and bulls? I still think they could have been a little more imaginative. Charles Carlson in his Eight $teps to $even Figure$, which I've mentioned previously, gives a nice perspective that requires my consideration. He states "Too many people allow their investing habits to be influenced by whether the market is a "bear market" or a "bull market." He further elaborates on our need to consider that long-term strategies of investing will show the best profitability. He suggests that the purchase of stocks during a "bear market" help us to develop a position to take advantage of the "bull market."
So…"bear markets" bring with them falling stock prices. There is a chance, that if I do my research, I can get more bang for my buck during a "bear market." Stocks that were priced out of my price range before could now be attainable. And since I trust that the market will eventually recover and return to a "bull market," my intuition tells me that buying now might be a wise investment strategy.
Since we're investing for the long-term, whether its horns are up or its paws are down, the mood of the stock market should not affect our investment strategy of buying and holding. But, it is interesting to watch the whimsical side of the market that is so unpredictable.
I've also learned that investors that jump in and out of stocks, buying and selling like crazy, and changing their portfolios daily or weekly, have another heartache to deal with. Tax time. All the buying and selling and profits and losses, and the dollar amount of each of those trades has to be declared on your tax returns every year.
Oh please.
Tax time is stressful enough as it is. I cannot imagine keeping track of all that information and then posting it to my taxes every year.
Just buying and holding with a minimum of information to the IRS feels safer and saner. I will be discussing my research on tax consequences in a future article but for now I'm feeling a little lucky. I just happen to be entering the stock market when stock prices are falling. With a bit of research and time, I might be able to pick some quality investment opportunities. Another good reason for me to jump in now and not wait too long.
As Mr. Carlson so aptly notes in his book, "Markets move in bursts." His advice? "The biggest risk of investing is not being in the market when it goes down but being out of the market when it goes up."
That advice is good enough for me. I'll be sure to be "in" the market when it goes up. When might it go up? Who knows and really who cares. I'm in for the long-term and I just feel happy to be in, and possibly getting so much more bang for my buck.
Next week we get technical again. We need to start defining a 52-week hi and lo, Sym, Div, Yld% (yuck…percentages) and P/E. That should keep me busy for quite a while.
Thank you for joining me
Joyce |
