Bulls Make Money, Bears Make Money, Pigs Get Slaughtered

Sun, Dec 15, 2019 1:30 PM on Exclusive, Recommended, Stock Market,
Bulls Make...

Suraj Marahatta

Even though pigs are portrayed as a symbol of intelligence in an allegorical novella "Animal Farm" by George Orwell, in the stock market, the pigs are usually made fun of. The pigs in the stock market are those types of people who boast about making a profit of 45% two years ago while hiding the fact that they are currently operating in the loss. These overconfident hype-beasts that have no clue about what's actually going on in the stock market are the reasons why the bulls and the bears make money in the stock market!

It is no surprise that only 5% of investors in the market actually make some money. The rest 95% of investors either make no money or make less than the average return of the stock market. As a self-taught financial analyst, I can tell you that unless you are extremely lucky while exhibiting the piggish behavior in the secondary market, you are going to make no money or even worse, you're going to lose everything you invest in the stock market. 

So, what are Bulls, Bears, and Pigs? As an investor, you'll belong to one of these three primary classifications. Some investors might share a few traits of all of these classifications.

Bulls:

Bulls are usually the most optimistic ones. They have high hopes for the growth of the economy and the prices of the stocks that they've purchased for themselves. The bulls drive up the prices of the stocks by creating a high demand when there is a low supply for them only to sell the shares after they grow up to a certain extent. It is easier to invest in the bullish market as any amount of money invested usually tends to grow. During the bullish trend, the bulls initiate the bullish trend and the market is pushed further up by the greedy pigs. The bulls either hold the stocks they own forever or sell them at their peak values. This is how the bulls make money. 

Bears:

Bears are afflicted with major trust issues in the growth of stocks. They believe that the market that has once gone up must go down and the recession is inevitable. The bears push the prices of every stock and they do not care if the company is good or bad, the prices keep on falling. The bears create less demand and more supply such that the prices of the stocks start to free fall. The bears keep on purchasing the scrip that is losing its value. Then, they sell the stocks when the market is pushed up by the bulls and hyper inflated by the pigs. Some bearish investors either hold the stocks they own forever or they start investing only after they feel like the bear market is about to end and sell the stocks they own at the peak of the bullish market. This is how the bears make money. 

Pigs:

Pigs are the type of investors who wish to make the most money in the shortest period of time. These investors are usually the undisciplined ones and the ones that take the path of their "gut feelings". They neither exhibit the traits of bulls nor exhibit the traits of bears and are known to take a high level of risk with no expertise in the field. They usually buy stocks when they are at their peak values and sell them off when they start to lose their values. Even though the bulls and the bears have totally opposite approaches to investing, they manage to make a considerable amount of profit for themselves. However, the pigs, due to their excessive greed and their undisciplined approach in the stock market, they either make less profit or make no profit at all.

Let me illustrate these traits to you with an example:

If you aren't a new investor, we both know how the SHIVM scrip toyed with our emotions a while ago. First of all, the company issued a premium IPO at Rs. 300 per share, which was barely fully subscribed. Then, the stock was listed on the 24th of March 2019 at Rs. 464 per stock. The bears dropped the price of SHIVM scrip from Rs. 464 per share to Rs. 305 per share. The stock had lost its value to reach up to Rs. 305 per share on the 17th of April 2019. This is the lowest value recorded per share of the SHIVM scrip yet.

Then, the market went bullish and the price action of SHIVM scrip, in particular, was very interesting to observe as it was gaining its value by 10% for three consecutive days starting from the 12th of May 2019 to the 15th of May 2019. The bulls started to push the price of this stock which went up to Rs. 712. As soon as the SHIVM scrip reached its saturation level of excitement enticed by the bulls, with the increment of its value up to Rs. 712 per share, investor psychology turned bearish. Both bears and bulls sold off at Rs. 712. This is how the bears and the bulls were able to book their profit from SHIVM craze. 

Now, the pigs are the ones that bought the SHIVM scrip after they noticed this stock had been gaining 10% of momentum every day from the 12th of May 2019 to the 15th of May 2019 without knowing its reason. Then, they continued to buy the shares even when the stock had reached Rs. 712 with the hope of booking an even bigger share of profit. This piggish behavior gave them no profit in return. Some of them even had to short-sell the stocks in loss to prevent further losses.

As of the 12th of December 2019, now that the SHIVM scrip is trading at Rs. 380, which is lower than when it was listed at Rs. 464, people with bullish and bearish traits tend to buy the scrip in cheap while the pigs wait till another market correction to gain investing confidence. 

Later, when the market rises, the pigs will stretch the price of the stock and buy the shares even when its value is at the peak, once again. However, since the bulls and the bears are disciplined, they sell-off at the peak and make a profit. The pigs won't sell the stock even if it has already saturated in its value and hold on to it with the hope of maybe the price will go further up. Meanwhile, the bulls and the bears are already out of the market with huge profits going straight to their bank accounts. This is how the pigs get slaughtered due to their excessive greed making them no money at the end.

If you were one of the lucky pigs that jumped into the trend and booked some profit, please do not consider yourself a stock market specialist. Unless and until you do not maintain discipline in the stock market, you won't be able to make a profit after another in the long run. 

When you are investing in the secondary market, please do not invest in a company just because its value is increasing day after day. It could just be a bubble that is destined to come down. Invest only in the companies you are confident in investing in. Speculation and short-term trading are not for everyone. Therefore, if you have the traits of a pig in the stock market, you should opt for long-term investing by following the Strategic Investment Plan (SIP). This way you may buy shares at any price and still make a profit over the long run. 

Disclaimer: Investing can be risky and it can turn out to be hazardous as we grab a wrong notion of investing. So, do not take this article as financial guidance. Always consult a licensed CFO or portfolio manager for your particular investment plans and financial goals. 

suraj.wonder.8596@gmail.com