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Bullish vs. Bearish: What’s the Difference?

Models of a bull and a bear
Models of a bull and a bear

Investors call someone “bullish” if that person believes that stocks, or any other security for that matter, will go up,. They call a someone “bearish” if that person believes that stocks will go down. Market sentiment informs investors’ behavior, and it is ultimately important to understand how optimistic or pessimistic their outlook is.

What Does it Mean to be Bullish?

A bullish investor, also known as a bull, believes that the price of one or more securities will rise. This can apply at any scale of the market. Sometimes a bullish investor believes that the market as a whole is due to go up, foreseeing general gains. In other cases an investor might anticipate gains in a specific industry, stock, bond, commodity or collectible. If an investor is, say, bullish about ABC Corp., this means that he or she thinks that specific company’s shares will climb.

A bull market conveys a related meaning. It exists when prices, typically those of equities, are generally on the rise. While not every stock will necessarily increase, the market’s main equity indexes will. For example, during a bull market the Dow Jones Industrial Average and the S&P 500 can be expected to climb, even as some individual equities and sectors may not. Unlike a bear market, there is no universally accepted percentage gauge for how much a market has to rise before it qualifies as a bull market. The longest bull market in American history for stocks lasted for 4,494 days and ran from December 1987 to March 2000.

It might be said that the prevailing sentiment of participants in a bull market is greed or fear of missing out.

Where the Term Bullish Came From

The term bull originally referred to speculative purchases rather than general optimism about prices and trend lines. When the term first came into use it referred to when someone grabbed a stock hoping it would jump up. Later, as years went on, the term evolved to refer to the individual making that investment, and eventually to the general belief that prices will rise.

Etymologists disagree on the exact origin of this term, however, it most likely has its origins as a foil to the term bear. While other theories circulate, this is the most generally accepted source of the phrase bull market. Perhaps the most widely reported alternative source for the term comes from how the bull as an animal attacks, by sweeping its horns upward in the same direction that optimist investors expect the market to go.

By contrast, under this theory, a bear market refers to how a bear will swipe downward with its paw. However, while literature contains numerous positive references to bulls throughout Western canon, etymologists have found little sound evidence for this specific theory in any historical record.

What Does it Mean to be Bearish?

Shadow of a bear over a stock chart
Shadow of a bear over a stock chart

A bearish investor, also known as a bear, is one who believes prices will go down. As with a bullish investor, investors can be bearish about either the market as a whole or individual stocks or specific sectors. Someone who believes, for example, that the stock of ABC Corp. will soon go down is said to be bearish on that company. An investor who foresees a market-wide dip in stocks, bonds, commodities, currencies or alternative investments like collectibles, is said to be bearish because he or she anticipates a sustained and significant downturn.

A bear market is one in which the prices of securities in a key market index (like the S&P 500) have been falling for a period of time by at least 20%. This isn’t a short-term dip like the one you’ll see during a correction, a time period when there are declines in prices of 10% to 20%. A bear market is a trend that leaves investors feeling pessimistic about the future outlook of financial markets or some part of a financial market. A secular bear market is one that lasts for years. The longest U.S. bear market was 61 months, from March 10, 1937, to April 28, 1942. The most severe bear market chopped 86% from the market’s value; it extended from Sept. 3, 1929 to July 8, 1932.

It might be said that the prevailing sentiment of investors who expect a bear market is fear that a coming downturn will wipe out wealth.

Where the Term Bearish Came From

The term bear market most likely came from both parable and practice relating to the trade of bear skins during the 18th century. During this era fur traders would, on occasion, sell the skin of a bear which they had not caught yet. They did this as an early form of short selling, trading in a commodity they did not own in the hopes that the market price for that commodity would dip. When the time came to deliver on the bearskin the trader would, theoretically, go out and buy one for less than the original sale price and make a profit off the transaction.

While this worked often enough to keep the practice going, it usually failed. This led to popular expressions of the time such as “don’t sell the bear’s skin before catching the bear,” “selling the bearskin” and “bearskin jobber.” All of these basically referred to a warning about speculation and making promises you can’t keep, while a bearskin jobber basically was a way of calling someone a cheat and a liar. Today’s equivalent would be on the order of “don’t count your chickens before they’re hatched” and “snake oil salesman.”

But the expressions took on a more specific meaning among investors and stock traders, who understood the practice of speculating on an anticipated downturn. Among investors the term “bearskin trader” and eventually just “bear trader” came to refer to someone who traded stocks the same way disreputable fur traders dealt in pelts. A “bear” sold a stock he didn’t yet own, in the same way that trappers once sold the pelt of a bear they hadn’t caught, then bought the stock back in the hopes of doing so at a lower price and pocketing the difference – in effect a short sale.

Eventually the term bear expanded. Instead of referring specifically to short sale traders investors began referring to anyone who expected price dips as bearish, and declining prices as a bear market.

The Bottom Line

An investor sitting in front of his screens
An investor sitting in front of his screens

A bullish investor, also known as a bull, believes that the price of one or more securities will rise. A bearish investor, also known as a bear, is one who believes prices will go down and eradicate a significant amount of wealth. In a sense, both types of investors are driven by fear: the bullish investor is driven by fear of missing out; the bearish investor is driven by fear of losing wealth. The fact that these terms are common reflects what a prominent role investors’ sentiments or moods play in buy-and-sell decisions.

Tips for Investing

  • Consider talking with a financial advisor who can help you understand if an investment decision or strategy is based on emotions or something more objective. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool can match you with financial advisor in your area to start sifting through these issues and many more. If you’re ready, get started now.

  • One way to handle your portfolio during either a bull or bear market is with a free investment calculator. Such a tool can help limit the role of emotion in your investment decisions.

Photo credit: ©, ©, © Dutton

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