How the Bulls and the Bears Came to the Market

November 5, 2018

Bull statue on Wall Street New York.
How handshakes, borrowed money and unpublished prices led to the creation of today's stock market icons.

The history of exchange market trading in our country dates to the early 1700s. Although many types of trading happened before this time, there were no market prices published or written agreements regarding buying and selling prices for goods or the borrowing of money from investors. With the discovery of the New World, traders quickly became speculative as they purchased goods in the Americas in the hope of making a profit when they sold them back in Europe. 

The term Bull was at the time a way to reference a person as one who seeks to cause a rise in the price of a stock. The term Bull has origins in Norway, France and other European countries. A bull market has come to mean a market in which share prices are rising or expected to rise and buying is encouraged over extended periods of time. Bull markets happen when more people want to buy stocks then sell them.

"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria" - Sir John Templeton

Buyers or Bulls were always looking for ways to make money, or a spread, on their purchase regardless of whose money they were using.

A Bear, the opposite of a bull, is someone who sells securities or commodities in the expectation of a price decline. Some etymologists (people who study the origins of words) argue that the bear came first, referencing an old English proverb that it isn't wise to sell the bear's skin before capture.

I fear the word "bear" is hardly to be understood among the polite people; but I take the meaning to be, that one who ensures a real value upon an imaginary thing, is said to sell a "bear"....
-Richard Steele, The Tatler, 1709. - Merriam Webster Dictionary

The Bears would sell a borrowed stock with a delivery date specified in the future expecting that the stock price would go down, allowing them to buy back the same stock at a lower price. The difference between the selling price kept as a profit. Many people used this way of selling in the early 1700s which later led to the 1711 scandal known as the South Sea Bubble which financially ruined many investors who invested in the British based South Sea Company. The South Sea Company sold stock with a guaranteed interest rate of 6%, hedging on the guarantee of a treaty being signed at the end of The War of the Spanish Succession allowing open trade between the Spanish American colonies and England. The Treaty of Utrecht made with Spain imposed taxes on goods and only allowed The South Sea Company to send one ship each year for general trade, soon bankrupting the company.

The eighteenth-century animal imagery caught on and is still used today in reference to stock market conditions. Bull markets mean rising prices for investors, with Bear markets reflecting declining prices. Eventually a Bull market is followed by a Bear market, which is why investors need to pay attention to which animal is on the rampage down Wall Street.

Sources, "Investing Quotes You Can Bank On," February 19, 2010, "Origin and Meaning of Bull", "The Origins of the Bear and the Bull in the Stock Market", "The History of ‘Bull' and ‘Bear' Markets"

Harvard Business School Baker Library online, "What is the South Sea Bubble?", "South Sea Bubble"

USA Today, "Bull market, bear market:  What are they and why should you care," August 29, 2018