Jul 21 2009

Bears Make Money, Bulls Make Money, Pigs Get Slaughtered.

I don’t mean to get all Animal Farm on you, but have you ever noticed there are a lot of animal metaphors in investing? Most people have heard about bear markets and bull markets, but did you know there are also pigs in the market? Well, yeah, I suppose you did. But do you know what kind of investing animal fits your personality and how to profit from each?

Bulls.

A Bull Market occurs when the economy is stable and growing. Unemployment is low, the GDP is growing and the stock market is rising. Bull markets are great because even a monkey can make money in a bull market. Optimism abounds.

A Bullish investor is someone who thinks, or feels, that a bull market is present or very near to happening.

Bulls make money because stock prices are rising.

Bears.

A Bear Market is the opposite of a Bull Market. Unemployment is rising, the GDP is receding, and stocks are falling. Pessimism abounds. It seems like no one can make money in the stock market.

Bear investors are those who are pessimistic on the stock market or economy as a whole. Bears expect the stock market to fall.

Bear do make money though. They make money by investing in businesses that do well when times are tough, or by shorting the market, sectors or individual stocks.

Pigs.

Pigs is  a term only applied to investors, and not the market as a whole. A pig is an investor who has become greedy and blind to the possibility of a loss.

Pigs can be investors who buy high risk investments, or a bear or bull who has simply become blinded by greed. Pigs buy stocks based on hot tips. Pigs become convinced that we are living in a “new economy” and that the market can only go up, or down indefinitely. When the direction turns, they get slaughtered.

Don’t be a pig.

Pigs are an essential part of the investing ecosystem – just don’t become one. Bears and bulls can capitalize on pigs. Often times it is the pigs that drive the market to extremes and create conditions whereby bulls and bears can profit.


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