What Is a Bull?
A bull is an investor who thinks the market, a specific security or an industry is poised to rise. Investors who adopt a bull approach purchase securities under the assumption that they can sell them later at a higher price. Bulls are optimistic investors who are attempting to profit from the upward movement of stocks, with certain strategies suited to that theory.
Market Mentalities: Bulls Vs. Bears
Bullish investors identify securities that are likely to increase in value and direct available funds toward those investments. Opportunities to assume the position of a bull investor exist even when an overall market or sector is in a bearish trend. Bull investors look for growth opportunities within the down market and may look to capitalize should market conditions reverse.
Bulls and Risk Mitigation
To limit the risk of losses, a bull may employ the use of stop-loss orders. This allows the investor to specify a price at which to sell the associated security should prices begin to move downward. Additionally, these investors may purchase puts to help compensate for any risk present in a portfolio.
- A bull investor believes that the market will increase in value over time.
- Bull investors can fall prey to bull traps, when they mistake a short term blip for a trend of increase in prices.
- Bears are the opposite of bulls and they believe that the general direction of prices in a market trends towards a decline.
Bull investors must be mindful of what is commonly known as bull traps. A bull trap exists when an investor believes a sudden increase in the value of a particular security is the beginning of a trend resulting in the investor going long. This can lead to a buying frenzy where, as more investors purchase the security, the price continues to inflate. Once those interested in purchasing the security have completed the trades, demand may decline and lead to lower associated prices for the security.
As the price declines, bull investors must choose whether to hold or sell the security. If investors begin to sell, the price may experience further decline. This may prompt a new round of investors to begin selling their holdings and driving the price down even further. In cases where a bull trap did exist, the price of the associated stock often does not recover.
Bear and Bull Investor Comparison
A bear is the opposite of a bull. Bear investors believe that the value of a specific security or an industry is likely to decline in the future. For example, if you are bullish on the S&P 500, you attempt to profit from a rise in the index by going long. Bears, in comparison, are pessimistic and believe that a particular security, commodity or entity is set to suffer a decline in price.
Bullishness and bearishness do not necessarily apply only to the stock market. People can be bullish or bearish on any investment opportunity, including real estate, commodities such as soy beans, crude oil or even peanuts.