The animals of finance
This article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022) analyzes the animals of finance used as metaphors.
Financial markets are a common marketplace where trading of different securities (stocks, bonds, foreign currencies, derivatives, etc.) takes place between prospective buyers and sellers. They play a pivotal role in the functioning and growth of an economy by allocating limited resources and generating liquidity. They consist of several terminologies, associating animals to define key characteristics of different market scenarios and types of investors.
A bull is used to define an investor or a market scenario where the traders are optimistic about the markets and expect an upward trend or movement in stock prices. A bullish investor takes a long position in the market and expects to generate a profit by selling the stocks at a higher price. Also, investor confidence is high when the market shows a bullish trend and more capital usually flows into the market increasing market capitalization.
A bear is used to define an investor or a market scenario where the traders are pessimistic while having negative sentiments about the markets and expect downward trends in the short term. A bearish market shows a lack of investor confidence and comes into existence for a short period followed by a bullish trend. A bearish market is the polar opposite of a bullish market and investors make use of different techniques including short-selling to profit from such trends.
Based on the concept of an ‘Ostrich Effect’, Ostriches represent investors who avoid bad market news and bury their heads inside the sand just like an ostrich to avoid facing such unfavorable situations. Such investors fail to react to negative news at the correct time in anticipation of good times ahead. The strategy employed by them often leads to heavy losses and lower confidence in financial markets.
Stags are used to define investors who take long positions during the initial public offerings (IPO) of a company and profits by selling the stocks once the shares are listed. These investors aren’t much affected by the bullish or the bearish market trend and place speculative bets on the short term market movements.
- Chickens and Pigs
Chicken refers to investors who are risk-averse in nature and have a very conservative approach while dealing in the financial markets. Such investors usually stay away from equity stock investments and prefer safer investments in bonds, fixed deposits, and government securities. The risk appetite for these investors is very low and they look for secured returns.
Pigs are used to define investors who are greedy and resort to taking high risks in anticipation of making huge profits. Their trading style is not based on any fundamental or technical stock analyses but rather on trending stock tips and hearsay. The undisciplined style of investment is what makes these investors most vulnerable to market volatilities and they are the ones to lose most of their investments when the prices move in unfavorable directions.
Wolves are used to define investors who are powerful and greedy and resort to unethical and illicit means to generate huge returns in the market. Most of the time, wolves are involved behind the development of high-level scams which disrupts the financial markets and leaves a long term impact on genuine investor’s confidence.
Article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022).