By W. Dowdy White, Fall 2018 IAC Student Intern
Have you ever been bullfighting? Odds are that you probably have not. Well, if you’re like most people, you probably haven’t jumped into a dangerous ring with a 2,000-pound bull and flashed a bright red muleta. If you have, whoa! I can’t believe that you’re reading this right now! This segment of our Wednesday’s Word series is about bull markets. Don’t worry, this term doesn’t describe a market in which you buy your stocks while fighting a bull. On the contrary, according to Investor.gov, a bull market exists at a time when “stock prices are rising and market sentiment is optimistic.” To put it in simpler words, a bull market is a market in which prices rise during prolonged period of time.
Despite its almost aggressive-sounding connotation, bull markets are not a bad phenomenon. In fact, they are often used to contrast the term “bear market,” which is a market in which we see a steep decline in market prices during an extended period of time. The term “bull market” actually comes from the phrase “bullish,” which is used in the investing world to describe someone who believes that the value of a security or market will rise. Though the concept may sound a bit remedial, brokers and customers have a hard time actually predicting when the market will trend towards a bull market, despite the mountains of research that have been conducted on the potential predictability of stock returns.
In the grand scheme of things, you may be wondering why you should care about bull markets at all. Well, it may seem like a great idea to buy higher amounts of riskier stocks while the market is trending upwards, especially for a long period of time. However, it’s important to maintain a smart and healthy balance of your investments just in case a bull market causes your mix of investments to get out of sync and you start potentially hemorrhaging money.
Bull markets, in theory, are good things. However, take precautions when it comes to moving your money around during a prolonged period of market price increases.
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