In context of stock markets you would have heard the presstitutes talking about Bulls, and Bears. But the 2 of them are not the only animals of the stock markets. There are lot more and have associated behavior with them. This post is to show you the classic behavior shown by these animals of stock markets, your fate will end up like these if you copy them.
- Bulls: This famous animal is said to cause the prices to rise. The attack strategy of this animal i.e. throwing up with horns, is also the reason to give that name. When a stock is in bull run its prices rise rapidly. Here the person who is bullish expects the price to rise in future, hence he buys now with intention of selling it at later date with decent profit. During bull run its better to have a deep look at market’s expectation and fundamentals. If you are a trader then a definitive signal bull run like bullish engulfing pattern, hammer pattern must be expected.In bull markets its the greed which is at play.
Bulls normally go Long, raising prices. But important aspect to note of these bulls are – they sell when their streak is broken i.e. when bears take charge.
- Bears: This is another famous animal which swipes down the price. Its rumored that the name bear came from Bear Skin Jobbers who sold the hides before they had possession of it. The bear indulges in activity called short selling. They sell the shares first in expectation that prices will decline, and cover their position when prices drop, making decent profit for themselves. Here the person doing short selling is said to be bearish in his outlook. In bear market a look at fundamentals throws up lots of opportunities for investors as prices are cheap in this market. For traders good signals like shooting star, bearish engulfing are supposed to be seen. In bear markets its unrestricted fear is at play.
Bears always work with definitive strategy as they are predator class animals. Since bears sell even before they have requisite stock with them, they have to cover their position by trading day’s end if they are doing intraday, or before date of expiry. This covering of positions by bears cause small rally, which is explained next.
- Dead Cat Bounce: This is a metaphor to short covering rally. if you pick a dead cat and throw it against a surface, it will bounce but still its dead. This small up surging rally is also called as sucker rally, as pigs gets on board.
- Pigs:This animal is classic. Investors of this behavior are major revenue sources of bulls and bears. Pigs go overboard with their risk appetite and embrace risk with both hands. Pigs often times become impatient, and greed / fear overruns their decisions . These people invest without doing any due diligence, and invest on hot tips. They also throw statements like “Equities are for the long term” and many times sell it after a year of purchase. Pigs are those who mistime or totally ignore their sell calls, often times disregard their asset allocations, and don’t have proper controls over their portfolios. For that reason only there is quote dedicated to these in wall street.
Bulls make Money, Bears make Money, but Pigs get slaughtered.
Pigs normally watch business news channels, sites for hot tips. They often times enter market either during bull run or sucker rallies (a.k.a dead cat bounce). Their exit is often at start of a bull run or in the bear attacks after getting bruised badly or becoming impatient.
- Chicken: This animal is opposite of pig. pigs embrace risk whereas chickens are so afraid of risk of volatility, they put all their money in debt instruments, Bank and Corporate FD’s. Their overarching need for capital protection makes them totally overlook the threat of inflation and also the need to make profits. Its because of their fear, chickens get fried.
- Ostriches: Ostriches buries their heads in sand when it senses danger. Similarly investors stop looking at their portfolio and ignore any news about it during bad times and hope that their portfolio hasn’t been hit badly. Since these investors dont have any mechanism to get news, they are not able to take advantage of the situation. Though this behavior works out well in bear markets making this as habit will be detrimental to their portfolios if markets are infested by predators.
- IPO Stag: This animal doesn’t care about bulls and bears ruling markets. They buy into shares during IPO’s and sell it immediately when trading commences to make a quick profit by way of rising stock prices. This process is called as staging, flipping, and the traders who do this are called as stags. Stags have one major risk that is – they get predated if the stock instead of rising on day 1 starts falling.
- Wolves: This animal is out right predator. The name is given to those powerful individuals/group of individuals who resort to clearly unethical and criminal means to make money. Some examples for these are Jordan Belfort on whom wolf of wall street movie was made, Harshad Mehta, Ketan Parekh. Their tactics can be like wolf-hunting to drive the company’s share price to 0. Whenever a stock fraud comes into light we often see such rapacious and ferocious individuals behind it.
- Dogs and Cats: This name is used for stocks which clearly speculative in their profits and margins, sales etc.. Its also metaphor to stocks which fall under dog quadrant BCG matrix. Often times analysts say “in bull run even dogs and cats are going up” which means worthless stocks are also going up. This metaphor implies not to be confident of our stock picking skills as everything is in profit. These stocks can also be categorized as “Shit Cap“.
- Hound Dogs: This distinction is given to people who’s investment methodology revolves around dividends. Dogs of Dow is one such investing methodology where stocks are purchased based on their top 10 dividend paying companies. Dog is also said to be stock which falls under dog quadrant of BCG matrix, but it also get mixed with cats. May be NSE’s Dividend Opportunities Index tracker can be given this distinction too as its list of top 50 dividend paying stocks.
- Lame Duck: A Trader who is poor trader and has accumulated lots losses or a trader who has defaulted on his loans by not covering his positions is called as Lame Duck. In wild, ducks which fall out of of their group because of being slow waddle and dont know what to do. An investor or trader who has no idea about his portfolio, where its going, is called as lame duck. This kind of investor says “Equities are for long term” and hold suzlon.
These are various animals of stock markets and classic behavior associated with them. Its not a bad thing if you had been like any of these animals and shown classic behavior of them. Its only wrong, if you are stuck in that mindset and not willing to grow. So learn and grow.