This is an audio transcript of Money Clinic podcast episode: ‘Five-Minute Investor — What’s a bull market?
Claer Barrett
Can you speak the language of money or are you one acronym short of an investment picnic?
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Too often, financial jargon prevents us from making the most of our money. But this podcast from the Financial Times is designed to make you smarter and hopefully richer in just five minutes. Welcome to the Five-Minute Investor from Money Clinic. I’m Claer Barrett, the FT’s consumer editor, and I’ll be teaching you what you need to know about key investment terms in the time it takes you to put your make-up on. Each week, we take one investment term selected by our listeners and challenge a top investment commentator to defang the financial jargon in just five minutes.
Joining me this week in the studio all the way from New York is Rob Armstrong, author of the FT’s Unhedged newsletter and co-host of the Unhedged podcast. Welcome, Rob.
Rob Armstrong
It’s great to be here, Claer.
Claer Barrett
Well, we love having you on the show. Today, with no deviation, repetition or hesitation, I want to quiz you on what is a bull market. Could you start by giving us your five-second definition please?
Rob Armstrong
A bull market is a market that rises 20 per cent over a reasonably short period of time.
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Claer Barrett
OK, well, as I set the timer, could you please tell us more about the bull market starting now?
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Rob Armstrong
Well, a bull market is one of those things, Claer, that sort of eludes technical definition. The traditional 20 per cent point aside, it’s one of those things that you know it when you see it. A bull market is one of those markets where all or most stocks just wanna go up. And investors or most investors just wanna dance while the music is playing. So there is enthusiasm, what we call animal spirits, and problems are ignored and opportunities are highlighted. It is, of course, the mirror image of a bear market in which everything I said is just simply reversed.
Claer Barrett
OK. Well, the bull market, the price of everything is charging ahead like a bull as control. That’s what we’re in at the moment, right?
Rob Armstrong
It sure feels like that. And I know the UK market in particular — which has had a tough run of late — signs of life in that market has everyone feeling pretty good and much more bullish than they’ve been in years.
Claer Barrett
But there’s also a lot of fear around that the bull market can, as you say, quickly turn into a bear market where the overall market drops by 20 per cent over a fairly short period of time.
Rob Armstrong
You’ve put your finger on the fundamental tension of a bull market. On the one hand, everybody wants to join the fun and get involved and see the value of their portfolio go up. At the same time, fundamentally, what’s happening in a bull market? Everything is getting more expensive. So that makes you wonder, am I overpaying? How long can the music last? What’s the next step in this adventure? So in every bull market, there is greed with a little tincture of fear mixed in that the music will stop while we’re still on the dance floor.
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Claer Barrett
Now, should you change the way that you invest depending on whether you think we’re in a bull or a bear market?
Rob Armstrong
Absolutely, unconditionally not. One of the great things about being an amateur, as opposed to a professional investor, is that you can ignore things like bull and bear markets. The right approach is to ignore the hype and the excitement and the fear and the joy and the hysteria, and just stick to the plan. Invest the same amount on a regular basis out of your savings and keep a cool head.
Claer Barrett
And if people want to know more about that, look up pound or dollar cost averaging — an interesting concept to grasp. Now moving from bulls and bears to the avian world. Rob, what about doves and hawks? We’re gonna be hearing quite a bit about them in the next few months.
Rob Armstrong
You’re really bringing out the whole bestiary here, Claer. Doves and hawks are the animal pair that is used to discuss monetary policy. And doves, which I guess are peaceful and sweet, are monetary officials who loosen interest rates. Hawks, ever-vigilant, are birds or monetary officials who are always on the lookout for inflation and will quickly raise rates to squelch inflation. So, you know, in this environment where we’re still battling inflation, there’s gonna be a lot of talkies. Will the next move be a dovish move or a hawkish move? And again the same wisdom applies. If you are lucky enough not to be a professional investor who’s supposed to beat the market in the short term, you can just stick with your plan, whatever the interest rate and monetary policy environment is.
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Claer Barrett
Interest rates can, in some instances, cause a bull or a bear market to happen.
Rob Armstrong
Absolutely. If market participants believe that the central banks are dead set on killing inflation and are accordingly cranking up interest rates, they recognise that what the monetary authorities are doing there is simply trying to slow the economy down. They are literally putting their foot on the brakes of the economy, and that is gonna show up in lower earnings at corporations, and therefore stocks are going to feel it. And very often in that case, a bear market ensues. On the other hand, in moments of loosening, money is cheaper, there’s more of it around and financial assets will tend to go up.
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Claer Barrett
Well that timer means, Rob, that your five minutes are up. Thank you for packing so much in explaining all of those animals in the investment world to our listeners with no deviation, repetition or hesitation.
Rob Armstrong
Thanks for having me.
Claer Barrett
We firmly believe on Money Clinic that there are no stupid questions. The only stupid thing would be not to ask if there’s something you don’t understand. So if there’s an investment term, a piece of jargon, a phrase you’ve heard that’s baffling you and you’d like me to unpack it in the studio with an expert, then just get in touch with us. Our email address is money@ft.com. Or send me a DM on Instagram and TikTok, I’m @ClaerB.
Brand new Money Clinic episodes will be coming soon. And if you can’t wait until then, have a browse through our back catalogue where you can find hundreds of episodes or click on my suggestions in today’s show notes.
Finally, the Five-Minute Investor is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that, you’ll need to find an independent financial adviser. Tune in next week for another Five-Minute Investor. Goodbye.
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