Not All Bulls Are Dopey, Not All Bears Are Smart

The Following is a Public Service Announcement.

Not everyone with a Bullish outlook is

  • wearing rose-colored glasses
  • a "Pollyanna"
  • a "bagholder"
  • whistling past the graveyard
  • frivolous
  • blind
  • naive
  • shortsighted
  • mercurial
  • irresponsible
  • reckless

Not everyone with a Bearish outlook is:

  • sagacious
  • interesting
  • a "graybeard"
  • rigorous
  • thoughtful
  • an intellectual
  • forward-thinking
  • a veteran
  • cautious
  • prophetic

There are dumb bears and brilliant bulls.  The above stereotypes are distracting us from the truth.

We'll leave the anarchists, conspiracy theorists, wingnuts and industry shills out of this discussion and strictly focus on the middle 80% of the punditocracy...

A consensus has begun to form amongst market participants that anyone publicly expressing a bullish viewpoint is a dope or guilty of spin and conversely, anyone making the bear case is automatically wise.

This is nonsense and it's been promulgated by both the mainstream media and the financial web, both of which sometimes opt for a cleaner story with pret-a-porter viewpoints and archetypal characters.

As a result, we have people who are afraid to be positive when in the public eye, secreting away their guilty pleasure long ideas like DVD copies of The Notebook.  Guys, it's OK to be upbeat, unless you're of the perma-bull variety or you've got a book out called Dow 36,000...no one's going to laugh at you, provided your positivity is grounded in reality.

We also now have a knee-jerk cult worship program built around the idea that someone who spouts negative statistics and arguments, even if they're the same ones we've been hearing for months, should automatically be quoted and heeded.  Both mainstream journalists and bloggers are guilty of this.  Don't believe me?  Do a Google article search for "Meredith Whitney" or "Nouriel Roubini".  If one of them sneezes, the keyboards go into overdrive as everyone races to cover it.

Like many stereotypes, there is a kernel of truth to the basic premise that bears are smarter, but just a kernel.

For starters, up until very recently, it was difficult for amateurs investors to play the short side, leaving most bearish strategies to the professionals.  With the advent of short ETFs, new online trading tools and a better understanding of options, individual investors have narrowed the short-selling expertise gap over the last decade.

Another origin of the smart bear myth can be traced back to the concept that short positions theoretically carry more risk.  The thinking went that over time, markets usually move higher and a stock can climb forever but the most it could ever drop is 100%.  As a result, it was typically believed that shorts did more homework to cope with that extra risk.  Because a variety of hedging strategies can be employed, the "more risk equals more homework" concept is also a fallacy.

The bottom line is that none of our esteemed commentators should feel either smugly comfortable with their bearishness nor shame for their bullishness.  There is wisdom and foolishness in both camps, regardless of the market's future direction.

Let's get back to basics and judge our pundits based on the merits of their arguments, not their directional affiliations.


Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

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