Bulls and Bears

'Betwixt hope and fear' - A bull or a Bear?

We often talk about the Bulls and the Bears, but have you ever wondered where the terms come from? Many credit Thomas Mortimer for first mentioning the terms in print in his 1761 book; Every Man His Own Broker, or, A Guide to Exchange Alley.

Exchange Alley was London's equivalent to Wall Street. Mortimer believed that he could identify Bulls and Bears by sight;

“[A Bear] is easily distinguished from the Bull, who is sulky and heavy, and sits in some corner with a melancholy posture: whereas the Bear, with meager, haggard looks, and a voracious fierceness in his countenance, is continually on the watch, seizes on all who enter the Alley, and by his terrific weapons of groundless fears -- and false rumors -- frightens all around him out of property he wants to buy; and is as much a monster in nature, as his brother brute in the woods.”

Mortimer used "bull" and "bear" in more specific connotations than we use today, rather than just being somebody who bought stocks in the belief that the market would go up, a Bull was somebody who used massive leverage to buy stocks with no money at all with the belief that he could sell them at a profit before payment became due.

In Mortimer's words;

“a man who in March buys in the Alley 40,000 pounds in May, and at the same time is not worth ten pounds in the world ... is a Bull, till such time as he can discharge himself of his heavy burden by selling it to another person, and so adjusting his account, which, if the whole house be Bulls, he will be obliged to do at a considerable loss; and in the interim (while he is betwixt hope and fear, and is watching every opportunity to ease himself of his load on advantageous terms, and when the fatal day is approaching that he must sell, let the price be what it will) he goes lowering up and down the Stock Exchange, and from office to office; and if he is asked a civil question, he answers with a surly look, and by his dejected, gloomy aspect and moroseness, he not badly represents the animal he is named after.”

What of the other side of the coin? In the 18th Century a bear was pessimistic about the market to the point of being a short-seller:

“a person who has agreed to sell any quantity of the public funds more than he is possessed of, and often without being possessed of any at all, which, nevertheless, he is obliged to deliver against a certain time: before this time arrives, he is continually going up and down seeking whom, or ... whose property he can devour; you will find him in a continual hurry; always with alarm, surprise, and eagerness painted on his countenance; greedily swallowing the least report of bad news; rejoicing in mischief, or any misfortune that may bring about the wished-for change of falling the stocks, that he may buy in low, and so settle his accounts to advantage.”

So what have we learnt from this? It appears that the use of massive amounts of leverage is nothing new and that nothing has really changed over time. It also reinforces the paradigm that identifying the psychological difference between the two will greatly affect your returns. For example, it is unwise to be a bull in a bear market, because prices will be falling while you're hoping they will rise and the value of your portfolio will fall. Beware - never turn your back on a bull market or a bear market, or the adage goes, the trend is your friend.

Additionally, it details the important aspect that there are in fact two sides to the stock market - and up and a down - and that it is possible to profit in both markets.