Normally, I don’t like to talk about the day to day market performance or weekly economic indicators. But a change in the nature of my work makes this more relevant and the people I’m surrounded with talk about it at length.
And no one can agree on where we’re headed. We always talk about the bulls and the bears, but some of you might not know what this means. To be “bullish” on the market you are optimistic and expect the market to go up. To be “bearish” is to expect the market to go down. The easy way to remember bulls from bears is bulls attack by using their horns and striking UP. Bears will use their arms and strike DOWN. Easy!
The easiest side to take is to be bullish on the market. We’ve seen tons of market increases since the low back in March, and economic indicators are either reversing towards good news or at least the bad news has slowed. Most of us are bullish if for nothing else based on hope. Our retirement accounts almost completely rely on stock market performance and so we want to be bullish for our own personal benefit.
But wise investors run into a burning building while everyone else s running out of it. Likewise, wise investors leave the building as everyone else walks back in. Based on this sentiment, it’s time to leave the building like Elvis. Investors are finally starting to feel better about the future are money is trickling back into the market. Many could argue that much of the stock market improvement is not based on company earnings or anything fundamental, but instead a natural price inflation due to increased buying demand and less supply of shares to sell.
Bearish folks are also big on “gut feelings”. Some bears I’ve spoken to are telling me things just don’t feel that good yet. The stock market run has been too much too fast. They say the market is due for a “correction”. This could be a severe drop in the value of indexes like the S&P 500, or just a minor blip of 5% or so over the time of a week or two.
So, back to the question, should we be bullish or bearish? Contrary to my post’s title, that really isn’t the question at all. This is because you can’t say whether or not you’re bullish or bearish without talking about time horizon. When someone asks you how you feel about the stock, ask them “short term or long term?” It’s impossible to answer the question without knowing the time horizon.
But since I did pull you in with a headline, I have to answer my own question. Though in the short-term I wish I were bullish, I do believe that the market has gotten ahead of itself. I feel the by the end of the year we will have some kind of a correction, small or large I don’t know, that will set us back on track for a slow 2010 recovery.
Long term my feelings are always bullish. This needs no explanation. The funny thing about being bullish or bearish is it really doesn’t matter unless you’re changing your financial allocation based on these feelings. I sure ain’t. Stocks basically go up in the long term, and their performance in the short term is irrelevant. So bullish or bearish isn’t the question, at least not to smart investors.
Photo: Ricardo Pacca
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
