The great novel Animal Farm written by the legendary author George Orwell is about animals and how they live together in a hierarchical society. As it turns out, he may have been talking about the stock market. The market is full of these named animals and each has a different place on the investment pole.
Pigs are greedy, chickens fearful, bears hide and sleep, bulls charge ahead. Over the years these names have become synonymous with a person’s investment interest or view of how the market is going to move. Really the names of the animals signify an individual’s approach or philosophical investment strategy.
One common myth is that the terms "bull market" and "bear market" are derived from the way those animals attack a foe, because bears attack by swiping their paws downward and bulls toss their horns upward.
There are a couple different possible sources for the “bear” part of this tandem, but the leading theory is that it derived from an old 16th century proverb: “selling the bear’s skin before one has caught the bear” or alternatively, “Don’t sell the bear’s skin before you’ve killed him,” equivalent to, “Don’t count your eggs before they’re hatched.”
By the early 18th century, when people in the stock world would sell something they didn’t yet own (in hopes of turning a profit by eventually being able to buy the thing at a cheaper rate than they sold it, before delivery was due), this gave rise to the saying that they “sold the bearskin” and the people themselves were called “bearskin jobbers”.
This is a useful mnemonic, but is not the true origin of the terms.
Long ago, "bear skin jobbers" were known for selling bear skins that they did not own; i.e., the bears had not yet been caught. This was the original source of the term "bear."
This term eventually was used to describe short sellers, speculators who sold shares that they did not own, bought after a price drop, and then delivered the shares.
One of the earliest references of this comes from an issue of The Tatler, April 26, 1709:
Forasmuch as it is very hard to keep land in repair without ready cash, I do, out of my personal estate, bestow the bear-skin, which I have frequently lent to several societies about this town, to supply their necessities; I say, I give also the said bear-skin as an immediate fund to the said citizens forever…
In a later edition, June 23, 1709, it goes on to state:
I fear the word Bear is hardly to be understood among the polite people; but I take the meaning to be, that one who insures a real value upon an imaginary thing, is said to sell a Bear, and is the same thing as a promise among courtiers, or a vow between lovers…
Yet another early instance of the term is in Daniel Defoe’s The Anatomy of Change Alley, published in 1719, around the time the term was popularized to something of the same type of definition we use today:
Those who buy Exchange Alley Bargains are styled buyers of Bear-skins.
The use of the word “bear” in this way was popularized thanks to one of the early market bubbles known as the South Sea Bubble. While it was a long and incredibly complex market scheme that led to the bubble, the gist of it was that the South Sea Company, formed in 1711, was granted by Britain a monopoly on all trade to South America and would be given an annual sum (6% interest plus expenses) from the government. In exchange, the new company agreed to take over large portions of the government’s debt. (In fact, this was primarily how the company actually made money throughout its century and a half it was in business, simply by dealing in government debt.)
Thanks to this deal and an amazing amount of government corruption, insider trading, and other unscrupulous practices by certain shareholders who knew well that the company’s trade business had little hope of ever being profitable, the burgeoning company’s stock soared. At its peak, based on the stock price, the company was worth about £200 million (by purchasing power, today this would be about £24 billion or $37 billion; by average earnings, it would be £350 billion or $537 billion).
Besides the fact that they didn’t even have their first trading shipment until 1717, 6 years after the trading company first formed, one of the problems was that having an exclusive monopoly on trading to South America from the British government at the time wasn’t saying much as most of the region was almost entirely held by Spain, who Britain was at war with. Nevertheless, amid rampant and widely published rumors (deftly planted by certain stock holders to jack up the price) of the vast wealth from gold and other resources in those regions and the potential promise of soon securing trade rights from Spain, the stock prices soared, even though the company itself wasn’t really doing any actual trading and their main asset, the monopoly on trade to Middle and South America, was essentially worthless, as the core stock holders knew well.
Spain did eventually grant the South Sea Company rights to trade in the regions held by Spain, but only one ship load per year total was allowed in exchange for a percentage of the profits. Needless to say, the inability to do any actual real volume of trading and the fact that war once again broke out in 1718 between Spain and Britain causing much of the company’s scant physical assets to be seized by Spain, the market crash that followed wasn’t pretty.
As to the “bull” name for rising markets, in this case we have to do a little more speculation as the documented evidence just isn’t there. The leading theory is that it came about as a direct result of the term “bear”. Specifically, the first known instance of the market term “bull” popped up in 1714, shortly after the “bear” term popped up. At the time, it was something of a common practice to bear and bull-bait. Essentially, with bear baiting, they’d chain a bear (or bears) up in an arena, and then set some other animals to attack the bear(s) (usually dogs) as a form of entertainment for spectators seated in the arena.
While bears were one of the more popular animals to use in these games, bulls were also commonly used. More rarely, other animals were used such as in one instance where an ape was tied to a pony’s back and dogs were set on them. According to one spectator, the spectacle of the dogs tearing the pony to shreds while the ape screamed and desperately tried to stay on the pony’s back, out of reach of the snapping jaws of the dogs, was “very laughable”…
In any event, the popularity of bear and bull baiting, along with perhaps the association with bulls charging, is thought to have probably been why “bull” was chosen as something of the antithesis of a “bear”, shortly after “bear” first popped up in the stock sense. But, of course, we can’t be at all sure on this one as there wasn’t the more lengthy documented progression of definition as with the “bear” term.
Because bull and bear baiting were once popular sports, "bulls" was understood as the opposite of "bears." I.e., the bulls were those people who bought in the expectation that a stock price would rise, not fall.
Bear Market
A bear market is when the economy is bad, recession is looming and stock prices are falling. It is a period of several months or years during which securities prices consistently fall. Also defined as a period when the stock market as a whole is decreasing in price.
The term is typically used in reference to the stock market, but it can also describe specific sectors such as real estate, bond or foreign exchange. It is the opposite of a bull market, in which asset prices consistently rise.
Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".
One theory as to where the bull and bear market got their names is due to the way the animals attack! A bull throws its horns up in the air and a bear swipes down at its prey. -
Just as with a bull market, not all sectors of the economy may participate. Certain sectors of the economy may decline while others rise. Making money during a bear market can be more challenging than during a bull market, but it can be done. Investors can protect their profits or generate current income by selling call options against stock they currently own. This is referred to as writing a covered call, and it involves selling another investor the right to purchase your stock at a set price for a set period of time in exchange for a premium. If the underlying stock does not increase in value to the set price, known as the strike price, the option will likely expire unexercised. The original investor gets to keep both his stock and the premium.
For those who don’t know, a “bear” market, or when someone is being “bearish” in this context, is marked by investors being very conservative and pessimistic, resulting in a declining market generally marked by the mass selling off of stock. A “bull” market is simply the opposite of that, with investors being aggressive and positive, with stock prices rising as a result of this optimism. This “bull” and “bear” terminology first popped up in the 18th century in England.
Pigs are greedy, chickens fearful, bears hide and sleep, bulls charge ahead. Over the years these names have become synonymous with a person’s investment interest or view of how the market is going to move. Really the names of the animals signify an individual’s approach or philosophical investment strategy.
One common myth is that the terms "bull market" and "bear market" are derived from the way those animals attack a foe, because bears attack by swiping their paws downward and bulls toss their horns upward.
There are a couple different possible sources for the “bear” part of this tandem, but the leading theory is that it derived from an old 16th century proverb: “selling the bear’s skin before one has caught the bear” or alternatively, “Don’t sell the bear’s skin before you’ve killed him,” equivalent to, “Don’t count your eggs before they’re hatched.”
By the early 18th century, when people in the stock world would sell something they didn’t yet own (in hopes of turning a profit by eventually being able to buy the thing at a cheaper rate than they sold it, before delivery was due), this gave rise to the saying that they “sold the bearskin” and the people themselves were called “bearskin jobbers”.
This is a useful mnemonic, but is not the true origin of the terms.
Long ago, "bear skin jobbers" were known for selling bear skins that they did not own; i.e., the bears had not yet been caught. This was the original source of the term "bear."
This term eventually was used to describe short sellers, speculators who sold shares that they did not own, bought after a price drop, and then delivered the shares.
One of the earliest references of this comes from an issue of The Tatler, April 26, 1709:
Forasmuch as it is very hard to keep land in repair without ready cash, I do, out of my personal estate, bestow the bear-skin, which I have frequently lent to several societies about this town, to supply their necessities; I say, I give also the said bear-skin as an immediate fund to the said citizens forever…
In a later edition, June 23, 1709, it goes on to state:
I fear the word Bear is hardly to be understood among the polite people; but I take the meaning to be, that one who insures a real value upon an imaginary thing, is said to sell a Bear, and is the same thing as a promise among courtiers, or a vow between lovers…
Yet another early instance of the term is in Daniel Defoe’s The Anatomy of Change Alley, published in 1719, around the time the term was popularized to something of the same type of definition we use today:
Those who buy Exchange Alley Bargains are styled buyers of Bear-skins.
The use of the word “bear” in this way was popularized thanks to one of the early market bubbles known as the South Sea Bubble. While it was a long and incredibly complex market scheme that led to the bubble, the gist of it was that the South Sea Company, formed in 1711, was granted by Britain a monopoly on all trade to South America and would be given an annual sum (6% interest plus expenses) from the government. In exchange, the new company agreed to take over large portions of the government’s debt. (In fact, this was primarily how the company actually made money throughout its century and a half it was in business, simply by dealing in government debt.)
Thanks to this deal and an amazing amount of government corruption, insider trading, and other unscrupulous practices by certain shareholders who knew well that the company’s trade business had little hope of ever being profitable, the burgeoning company’s stock soared. At its peak, based on the stock price, the company was worth about £200 million (by purchasing power, today this would be about £24 billion or $37 billion; by average earnings, it would be £350 billion or $537 billion).
Besides the fact that they didn’t even have their first trading shipment until 1717, 6 years after the trading company first formed, one of the problems was that having an exclusive monopoly on trading to South America from the British government at the time wasn’t saying much as most of the region was almost entirely held by Spain, who Britain was at war with. Nevertheless, amid rampant and widely published rumors (deftly planted by certain stock holders to jack up the price) of the vast wealth from gold and other resources in those regions and the potential promise of soon securing trade rights from Spain, the stock prices soared, even though the company itself wasn’t really doing any actual trading and their main asset, the monopoly on trade to Middle and South America, was essentially worthless, as the core stock holders knew well.
Spain did eventually grant the South Sea Company rights to trade in the regions held by Spain, but only one ship load per year total was allowed in exchange for a percentage of the profits. Needless to say, the inability to do any actual real volume of trading and the fact that war once again broke out in 1718 between Spain and Britain causing much of the company’s scant physical assets to be seized by Spain, the market crash that followed wasn’t pretty.
As to the “bull” name for rising markets, in this case we have to do a little more speculation as the documented evidence just isn’t there. The leading theory is that it came about as a direct result of the term “bear”. Specifically, the first known instance of the market term “bull” popped up in 1714, shortly after the “bear” term popped up. At the time, it was something of a common practice to bear and bull-bait. Essentially, with bear baiting, they’d chain a bear (or bears) up in an arena, and then set some other animals to attack the bear(s) (usually dogs) as a form of entertainment for spectators seated in the arena.
While bears were one of the more popular animals to use in these games, bulls were also commonly used. More rarely, other animals were used such as in one instance where an ape was tied to a pony’s back and dogs were set on them. According to one spectator, the spectacle of the dogs tearing the pony to shreds while the ape screamed and desperately tried to stay on the pony’s back, out of reach of the snapping jaws of the dogs, was “very laughable”…
In any event, the popularity of bear and bull baiting, along with perhaps the association with bulls charging, is thought to have probably been why “bull” was chosen as something of the antithesis of a “bear”, shortly after “bear” first popped up in the stock sense. But, of course, we can’t be at all sure on this one as there wasn’t the more lengthy documented progression of definition as with the “bear” term.
Because bull and bear baiting were once popular sports, "bulls" was understood as the opposite of "bears." I.e., the bulls were those people who bought in the expectation that a stock price would rise, not fall.
Bear Market
A bear market is when the economy is bad, recession is looming and stock prices are falling. It is a period of several months or years during which securities prices consistently fall. Also defined as a period when the stock market as a whole is decreasing in price.
The term is typically used in reference to the stock market, but it can also describe specific sectors such as real estate, bond or foreign exchange. It is the opposite of a bull market, in which asset prices consistently rise.
Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".
One theory as to where the bull and bear market got their names is due to the way the animals attack! A bull throws its horns up in the air and a bear swipes down at its prey. -
Just as with a bull market, not all sectors of the economy may participate. Certain sectors of the economy may decline while others rise. Making money during a bear market can be more challenging than during a bull market, but it can be done. Investors can protect their profits or generate current income by selling call options against stock they currently own. This is referred to as writing a covered call, and it involves selling another investor the right to purchase your stock at a set price for a set period of time in exchange for a premium. If the underlying stock does not increase in value to the set price, known as the strike price, the option will likely expire unexercised. The original investor gets to keep both his stock and the premium.
For those who don’t know, a “bear” market, or when someone is being “bearish” in this context, is marked by investors being very conservative and pessimistic, resulting in a declining market generally marked by the mass selling off of stock. A “bull” market is simply the opposite of that, with investors being aggressive and positive, with stock prices rising as a result of this optimism. This “bull” and “bear” terminology first popped up in the 18th century in England.
