Old MacDonald had an Investment Farm

The Momentum UK Team 3 March 2014

If you’re taking your first steps into the world of investment, you’ve probably come across a lot of jargon - some of which can be confusing! In this post we’ll demystify some of the more unusual sounding investment terms, by taking a trip to the farm…

On that farm he had a… Bull

“Bull market” is a term used to describe a financial market in which prices are rising or are expected to rise. It is most often applied to the stock market, but can apply to anything that is traded, such as bonds. A bull market is characterised by investor confidence and high expectations. So-called bull investors are optimistic and are mostly buying, which drives prices up.

On that farm he had a… Bear (trust us on this one)

A bear is the opposite of a bull. While a bull market is characterised by optimism, a bear market is a market in which most investors (bears) are pessimistic about future prices, so they are selling. This can cause a prolonged drop in equity prices. It is thought that the terms “bull” and “bear” are used because of the way the two animals attack other animals; a bull drives its horns upwards, while a bear swipes its paws downwards.

On that farm he had a… Chicken

Chickens are investors whose fear of risk overtakes their desire for large returns. This means that sometimes they can play it too safe, pulling their money out before it has a chance to grow, or choosing only extremely low risk investment vehicles. Chickens can make returns, but they are not usually very large.

On that farm he had a… Pig

While bears and bulls can each make returns in the different cycles of the market, and even chickens can make a profit, the big loser on the farm is the pig. A pig is a high risk investor who wants big returns in a short time. In their rush to make a profit, pigs buy based on “hot tips” and invest in companies before they’ve looked into them as thoroughly as they should. They can be greedy, impatient and emotional about their investments, meaning they rush into things too quickly and often lose out because of it.

Old MacDonald’s investment farm is a diverse place, and there is no universal “right” approach to investing - it all depends on what is right for your financial circumstances and attitude to risk. However, if you’re a pig, you may well end up getting slaughtered.