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When it comes to jargon, the financial world is full of it. We hear terms like short-selling, cryptocurrency, and non fungible tokens, which prompts a Google search to help us decipher what’s going on. But for this commentary, I’d like to explore two “old school” phrases that most of us have accepted at face value without really caring to know why: “bull markets” and “bear markets”.  

So what are they (technically)?

Bull markets are sustained periods of several months or years during which a large portion of securities are rising. Conversely, bear markets are sustained periods of price declines, typically accompanied by pessimistic investor sentiment and declining economic prospects.

Where did they come from?

The origins of these two expressions are somewhat shrouded in mystery. In the financial profession, there are several theories for how they came to be.

The first (and weakest) theory posits that the attack movements of these two animals were adopted to describe the movements of financial markets. A bear generally swipes its paws/claws downward, while a bull generally thrusts its horns upward.

A second (popular) explanation involves fur selling. Hundreds of years ago, bearskin middlemen would pre-sell skins they didn’t yet have in stock, but would deliver at a later date. They would speculate on the future price, hoping the price of skins would drop and that they would profit from the spread━the difference between the purchase and sale price. These became known as “bears” and since they hoped the future price of these skins would decline, it became a term used to describe the downturn in the market. It also led to the popular proverb, “Don’t sell the skin ‘til you’ve caught the bear.” Another fun fact: This exact type of speculation fueled the South Sea Bubble in 1720, which is considered the first international stock market crash.

Another explanation involves the popularity of “bull-and-bear fights” (and bear-baiting) during the 17th and 18th centuries. Arenas filled with spectators would watch a bull or bear (chained in the middle of a ring) be attacked by a pack of dogs. During those days, bulls were considered the opposite of bears. As a result, the pairing of these two animals stuck from a pop culture perspective.

A final (probable) theory is related to the inception of the London Stock Exchange. During its early days, the Exchange used an actual bulletin board on which traders posted offers to buy. When demand was high, the board was full of bulletins, commonly called “bulls” for short; when demand was low, the board was “bare”.

Which is true?

There is no definitive answer or commonly accepted belief and there has been (surprisingly) no academic or historical research to support the veracity of each claim. Like a movie with an ambiguous ending, it’s entirely up to you. At the very least, you can impress your friends and family at the next backyard barbecue. 

About the Author

Alex Albert is a Certified Financial Planner for Providence-based Lincoln Capital, a financial planning and wealth management firm. He is a graduate of the University of Rhode Island and earned CFP® certification from Bryant University. 

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