Stock markets have sparked the imaginations of many and have led to comparisons of price action to animals. The bull is the favourite among many, as it shows rising prices. This is because of the bull's attacking technique: it strikes the opponent from bottom to top with its horns. So, when prices go up, they say it's bullish or a bull-attack.
Similarly, when the prices go down, they say it's bearish or a bear attack. The analogy is simple: a bear attacks its opponent with its claws, swinging its arm from top to bottom.
The people who invest in the stock markets would like to see only one animal—the bull. Everyone wants their portfolio to be in the green; none of them would like to see even a small element of red. This is especially true for investors who entered after the COVID-19 crash; technically, they haven't yet seen a bear market.
The bear has an important role to play in trimming greed. Let us discuss in detail!
This is the weekly chart of silver in the period 1976 to 1980. In Jan 1979, silver was priced at $5.9 per ounce, and prices had been almost steady over the previous 5 years. Over the next year, the prices rallied 700 per cent to hit a new all-time high of $48/ounce (Jan 1980).
If you look at the chart, the prices went parabolic, with strong green candles and virtually no major price corrections. Basically, there was only one animal in play—the bull.
I am sure this period would have made money for a few, but the majority would have lost money despite the bull rally. This is because the public would have reacted to this speculative mania pretty late.
They might have entered the trade at, say, $30, $35, or $40, rather than at $6, $7, or $10. The Fear Of Missing Out (FOMO) would have sucked them all in, because prices skyrocketed every other day.
When prices go up like this, many would think of selling everything they have to latch onto this train. A few would have sold their houses to participate in the biggest silver rally they would have witnessed in their lifetimes.
This is what happens when the game is played by only a single animal, the bull. The bear is the necessary evil that would have contained the mania, the bubble, and the hysteria. Because what followed was a blood bath.
Silver prices crashed shortly after that, and the $48 price was not regained until 2011, a gap of 11,410 days (~ 31 years). The lowest silver price was $3.46/ounce in Feb 1991.
Now, think of the majority that got into silver positions at prices of $30, $35, and $40. They would have to wait 30 long years to see their position back in green. If you had sold your house at age 50 to invest in silver, you would have broken even at age 80. The real sadness is that even then, you could not have purchased a new home with the ROI from Silver.
History then repeated itself. Prices were around $8 in 2008 and rose to $48 in 2011, a 481 per cent rally in three years. The sad part is that prices gradually declined after that and returned to $11 by 2020. It was not until 2025 that silver reclaimed and broke out above $48, a gap of 5,299 days (~ 14 years).
Investors rarely wait 14 years to get their capital back. 99 per cent of them would quit in the first three years, saying their money is earning them less than a regular fixed deposit, and if they did that, 99.99 per cent of them would have made deep losses.
This process usually blinds them; they would go on to say that the stock market is a scam and that people lose money. Rarely would they point the finger back at them, saying they had gotten greedy.
There is only one solution to this. The next time a FOMO hits and you see parabolic prices—stay out. Yes, you may miss out on potential gains, but have the determination to protect your original capital.
The BEAR gives humility. Bears control the euphoria, hysteria, and madness in the stock market. Bear markets originate when someone points out corruption, whistleblowing, or fraud. If the government or regulators do not tolerate these activities, what would persist is a stronger, raging bull.
It is always best to keep the markets free and open, because if they rig them to bypass corruption charges, bribery, war-bond manipulations, electoral manipulations, and other fraudulent activities, the bulls will simply grow complacent and keep pushing prices to unsustainable levels.
As an investor, embrace the actions of the bear. Accept it’s okay to have portfolios in the red. Learn that it's during bearish markets that the assets trade near their fair value. If you are a mutual fund investor, you would know that it's during the red months that you acquire more units from the same SIPs.
In the long run, we can hope the bulls win, but to temper our greed, we need short-term bears too.
The writer is a SEBI Registered Investment Adviser (RIA), INA000021757, and author of ‘How to join the top 1% options traders club’.
The opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.