CNBC has it right in a promotion it runs: "Two little words that make the world go round: Buy and Sell". Since the beginning of humanity as we know it, before the invention of money, when people traded through barter, buying and selling moved the economy forward, making possible the creation of wealth, markets and cities. Wealth led to new lands - via more trade or war - and wealth made science and technology possible, which in turn fed wealth creation.
Anyone in any market anywhere and at any time can see prices getting higher or prices falling and, eventually, an iconography developed: the bull and the bear.
When the bull is dominant, prices go up, in the same way that a bull attacks its prey by thrusting its horns into it and up into the air.
When the bear has the upper hand, prices go down, since a bear attacks by swinging its paws down on its prey. It is also known to bite ferociously.
But if you want a horned, strong animal why the bull, why not the ox, for example? I used to ask myself this sometimes; not that I ever lost any sleep over it. At long last, I understood why the bull was chosen as the symbol of a strong, dynamic market when I visited the bullring and watched a bull overturn a horse and fling the torero twice into the air, shaking him very badly. Perhaps no other animal better represents raw power. The corrida was not as one-sided as I thought. Neither is the fascinating fox hunt, by the way, but I guess all blood sport is doomed by today's finer sensibilities.
Bob Dylan has a very playful song, perhaps the only one meant for children, called Man Gave Names To All The Animals. In the song, he describes how man, in the beginning, a long time ago, was giving names to all the animals. This is how he describes the bull:
"He saw an animal that liked to snort, horns on his head and they weren't too short. It looked like there wasn't nothin' that he couldn't pull. 'Ah, think I'll call it a bull'."
Why don't we use the ox as a symbol then? An ox looks very much like a bull and is probably as strong. One can even argue that its horns often look even more menacing. The problem is that the ox is mostly docile and lacks the bull's wild spirit and dynamism. The ox is good for pulling since you can guess roughly were it is going but with a bull you would never know the direction, nor the speed.
Edmund Burke, in A Philosophical Enquiry into the Origin of Our Ideas of the Sublime and Beautiful, puts it like this:
"An ox is a creature of vast strength; but he is an innocent creature, extremely serviceable, and not at all dangerous; for which reason the idea of an ox is by no means grand.
A bull is strong too; but his strength is of another kind... the idea of a bull is therefore great, and it has frequently a place in sublime descriptions, and elevating comparisons."
The bear as a symbol presents different problems. The bear has fur and enough roundness to look rather cuddly which is probably why it was made into a soft toy.
The most famous bear soft toy is the Teddy Bear which is named after Theodore ("Teddy") Roosevelt, President of the United States about 100 years ago, who is said to have refused to shoot a bear which his host had tethered to a tree to make up for the President not managing to make a kill that day.
Other than as a soft toy, the bear can do a lot of damage especially if it is hungry and takes you by surprise. It is not overly aggressive, however, and campers often frighten bears away by clanking pots and pans, shouting, and jumping.
According to Bob Dylan: "He saw an animal that liked to growl, big furry paws and he liked to howl, great big furry back and furry hair. 'Ah, think I'll call it a bear'."
The choice of the bull and bear as market symbols may also have originated from the fact that these two animals were sometimes pitted against each other in the arena.
The terms bull and bear have also come to be used with respect to investors. Those who are neither bulls nor bears are called chickens. They are the undecided and those waiting for a "correction".
When a market is moving sideways - gaining a few points only to lose it the next day - the bull and the bear would be struggling, with none the winner. There would be a preponderance of chickens. This may continue for months on end, with prices rather stable, but when either the bull or the bear exhausts itself, one sees the price shooting down or up sharply. In fact, the longer a market remains locked up like this, the greater and sharper the correction usually is.
Many people assume that the market goes up in the same way that it goes down, that the detailed behaviour of the bull market is much like that of the bear market but in reverse. Actually, it is very different.
A bull market is working against gravity. It is like men heaving a big load. It is slow, often painful, with lots of rests in between during which the price eases off, only to be pushed up again, farther or higher in another burst of effort. If it is retracing a path already trodden, then the bull would be meeting a lot of regret and misgiving along the way and there would be investors determined to sell as soon as the security touches such-and-such a price.
When the regrets and misgivings are conquered, and the security is tracing fresh ground, then there would be an easier passage until this too is overdone and the bull eventually exhausts itself in excess, usually in one big final mighty thrust. On the graph you can often see this as a final spike, with a huge volume. A bear market works on surprise and big, rapid moves. At first, when the bear is taking over, you would not even realise what is happening and you would think that it is still a bull market, perhaps with bigger corrections, under which heading you would put the spike, if there is one. But then, suddenly, for three, four or five days in succession, you get massive falls in prices, until bargain hunters go in and prices again keep to a level or even start rising.
As soon as you settle in, and perhaps even start wondering whether the fall was a fluke, it happens again, you got a bear at the camp, trying to maul prices. This attack too goes away, as suddenly as it came. Only to come again. The bear delights in skirmishes and guerilla tactics. It is a much tougher terrain to make money in.
This general behaviour of bull and bear reflect themselves in various aspects. Bull markets are generally of a much longer duration than bear markets. The bull is generally a creative force, creating value, and most markets generally rise over the longer term: the bull is king. The bear destroys value. To make money from a bear you have to sell today and buy tomorrow.
The bull is health and life while the bear is sickness and death. One of my favourite authors, Michel de Montaigne, says that one should not be unduly worried with death but rather seek to enjoy life. The reason, he says, is that for most people, the periods of health are much longer than the periods of sickness and that when one gets sick it is either only a little pain for a longish period of time or a lot of pain but for a very short period. (But there is no foolproof way we can cope with life, or death : Montaigne himself, unfortunately, later suffered from stones and was in great pain for a long time, which he suffered in fortitude, but he was, of course, speaking of probabilities.)
According to Ovid:
"The wolves and the base bears fall on the dying, and so do all the more ignoble beasts".
The difference between bull and bear even shows itself in the volatility of prices. During a bull market prices are much less volatile than in a bear market. The bull pushes but the bear shakes. When the bulls run the show, share prices equal greed minus fear. When the bears dominate, share prices equal fear minus greed. Fear is stronger than greed
True, markets move because of the two little words, buy and sell, but any movement, really, like any great religion, takes place because of conversions. It is conversions which make markets move: Bulls converting to bears, bears becoming bulls, chickens to bulls or to bears, and so on. When most participants are on one side, all bears, say, then the market can only go one way, and that's up. There's a limit to the downside power of the bear but there is no limit to the upside power of the bull. Be an optimist.
pvazzopardi@usa.net