The Nobel Economist: Bulls vs. Bears

Bulls vs. Bears

Being Bullish or Bearish in Finance means that you are either optimistic or pessimistic about the current market. Bulls are people who think that a market or a particular stock is going to rise. If investors are bullish about a stock, they will rally behind that stock by investing in it. Bears are individuals who feel that the market and or individual security is going to lose value. Bears investors are going to sell or take a short position in the security or Index that they believe is doomed. Investors shift in and out of bearish or bullish modes based on many factors, including global economic concerns, national economic data and corporate financial performance. These two diverse outlooks create the market. To have a working system we need people willing to buy and people willing to sell. Since bears think their position will lose value, they will sell to mitigate loses. Bulls on the other hand will perceive the same indicators as a good time to buy. And they will pick up what bears are selling, so that they can profit from the outward momentum that is anticipated. Investors can be bullish about a given market, but bearish on a given stock.

So, even with the same indicators, investors can be bearish or bullish about that same market. This has nothing to do with being optimistic or pessimistic, but with expectations. The most difficult for an investor is to eliminate the "bias". Successful investors remain cold even under the worst circumstances, after all financial storms are great buying opportunities. But basic financial theory (and I call it basic, I cannot believe anyone who has been linked to the Finance world has never heard about Bears and Bulls), cannot be so easily applied due to the human factor. Like I mentioned before, even with the same information people can read the data differently.

The fact that a market is going through depression or growth can impacts your stocks, or not. That is when the correlation factor comes in. Direct correlation means that the stock is directly linked to the performance of another indicator. Indirect correlation is quite the opposite, the stock follows the opposite direction. It makes sense, more cars will be sold in a good economic situation. Less cars will be sold in a recession (consumers have less money in their pockets). But some stocks will actually increase price under recessions. It is the case of toilette paper: households will still use it even under the worst crisis.

A country's macroeconomic situation is a good indicator as well. Consider that under recessions investors will sell their stocks, the money flowing to other countries and thus weakening the currency. The opposite will happen in a bullish market: money will flow in, strengthening the currency. This is crucial to consider when purchasing assets: the final outcome must be measured in Hard Currency (for ex, USD or EUR). If you buy a house but the currency devaluated your real earning is liquated. Consider the article: "Unemployment drops to 4,6%, lowest since 2007"[1]: the US has managed to recover from the Financial Crisis in 2008. This was done by applying Keynesian economic theory, which meant printing trillions of dollars in a context of low interest rates to boost job creation (the opposite that Europe did with austerity measures dictated from Berlin, which launched the Euro Zone into the deepest crisis since WW2). Now that the economy is stronger, the interest rate will probably rise making it attractive for investors and thus strengthening the currency (USD). Quite clearly it is a good moment to be bullish on the US as a country, but that doesn't mean that all industries and all companies will grow. Once you selected a bullish market, it is time to do deeper research as to which asset concretely you will make a bet for in that country.

In the article "This country has no government and 3% growth"[2] , we can see how Spain has been growing at a 3% pace the last few months despite political turmoil. After years of crisis the Spanish economy has finally bottomed and is growing. Growth in the economy means more money for consumer spending, which in turn boosts the private sector. However, 5 million unemployed is not an easy number to deal with. Even with strong growth, there must be more effort for social inclusion. And even with growth, not all industries are impacted on the same level. In my article "Successful tech hubs Barcelona"[3] I mention the success case of the city of Barcelona in the Technology field. This has led to it's choice as Mobile World Capital Barcelona[4]. However, it's Start Up Ecosystem has not blossomed as much as Dublin[5]. With a similar tax system, salary range and same religion, clearly culture matters. Spain has a long way to go still in the Technology field, and can take Ireland as example.

Being bullish or bearish on a given market has nothing to do with the country itself or with it's politicians, but simply with protecting your wallet and your savings. Economy goes in cycles, and as an investor you do want your asset basket to go up in price (again measured in Hard Currency). Check out the following Graph, regarding Bull and Bear markets. In bull markets people enter a sort of euphoria mode. Basing their decisions on social pressure and not being well informed, they go ALL-in. This works for any market, be it stock market, real estate market, etc. When the bull market ends, people start feeling uncomfortable. Sell begins, entering a panic mode. The market eventually finds bottom and starts lifting up again, regaining a more natural course.

Intelligent investors such as Warren Buffet[1], CEO of Berkshire Hathaway and the 3rd richest person in the world after Bill Gates and Jeff Bezos, make their own decisions without being influenced by 3rd parties. Again the situation of the Macroeconomy might be important, but the situation of the stock you are purchasing will be even more. The same for Real Estate. Is buying a house in an upward market enough to earn money? Clearly not. There are many other factors: location, if the house needs to be refurnished, how much financial leverage you got, the interest rate that you need to pay... and what happens if you lose your job and are deep into debt?

In the end, you have to trust you gut, and have balls. Your neighbor, and your own family (or family relatives, if it makes any semantic difference), do not want you to succeed. They want to see you DOWN. They don't want it to go well for you, they are surely jealous. You boss at work will clearly feel the same way. Don't listen to anyone, make your own decisions, and live up to them. YOU and only YOU can find the path to fulfill your Dreams. Choose the right partners, surround yourself with like-minded people, drop the garbage and enjoy life. Believe in yourself, have FAITH and destiny will take care of the rest!!!

Cristian Bøhnsdalen

CMO/CFO & Co-Founder @ITRevolusjonen