Friday, February 20, 2009

Bulls, Bears and Chickens (or Pigs)

What I want to talk about this afternoon is the saying, Bulls make money, Bears make money, but Chickens get slaughtered. There is a variation on this of Bulls make money, Bears make money, but Pigs get slaughtered.

The Bulls are an optimistic sort. They believe that stocks markets will go up. This does not mean you have to be a high-risk individual. You can invest in high quality stock and still be a bull. If you buy quality stocks, you will have little to fear from bear markets. For bulls, bear markets can offer great stocks at great prices. In Bear markets, all stocks tend to fall, whether they deserve to or not. Bear markets can then offer wonderful, once in a life time opportunities. The only reason you want to sell in a Bear market is if a stock you are holding turns out to be a real dog. You also might want to sell a stock, if another stocks looks like it is a better one for the future. You may sell low, but you can buy low, so this would be a wash, sort of. You should also remember that it is very easy to picks winners in a bull market. It is much harder to pick winners for the long term or in difficult markets.

Bears are pessimistic. Some people seem to be perpetual bears, always believing that bad thinks are around the corner. However, some are just realistic. We do have down markets and you can make money in down markets. People can make money in a bear market by what is called “short selling”. This is borrowing a stock to sell, that you will buy back later. If the stock falls in price, you will earn money. Say you borrow a stock and sell it at $10 a share. Later, if you buy it back at $5.00 you will make a $5.00 profit on each share. Another strategy is to wait until you feel the bear market is over and try to buy stocks at its end. However, it is difficult for anyone to tell when a bear market will end.

Pigs tend to be greedy. They are looking for the big kill. Once markets go up, they tend to think that this will happen for ever. You need to be reasonable in your expectations, and you need to know your history. No market will go continually up. Not only are pigs greedy, but they also tend to get emotional and impatient. They buy on hot tips, rather than personal research, or creating a plan with a financial planner. They forget that you should never, ever, invest in anything you do not understand. They should be more cautious and if a stock has a huge run up, it might be wise to take some money off the table. Pigs are the biggest losers in the market.

Chickens tend to buy too high and sell too low. This is because they tend to buy at market highs and sell at market lows. They tend to sell everything into bear markets and run for cover. Chickens often wait far too long into a bear market and sell far too late. This is why the saying has that “chickens get slaughtered”. If you have high quality stocks, do not sell into a falling market. I believe that you should never buy anything that disturbs your sleep. You can buy some guaranteed mutual fund products, and other guaranteed products, but the guarantees come at a price and are only sold by insurance companies. You may never make much money if you are void the market and never take any risk. There is nothing in life that is risk free.

What I am is a long term bull. When I buy stocks, what I am buying is a future income stream. However, there is no guarantee that my purchases will result in a future income steam. But if you take no risks, you will not earn much. I do my homework and research stocks I want to buy. I sometimes make mistakes, and hopefully I learn from them. I do not try to buy at the bottom and sell at the time. What I try to do is find good quality stocks at a good price. If I have a stock that runs far to high, I often sell some of it (that is take money off the table).

There is an article about this subject at Investopedia. There is also a Wikipedia for investors that is at . There is also a book on this subject called "Bulls Make Money Bears Make Money Pigs Get Slaughtered" by Anthony Gallea. It is available at Amazon, see my site for information.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets on my web site.

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