Seeing Both Sides of the Trade
It is important to realize that bullish and bearish perspectives necessarily coexist in financial markets.
--Captain Frank Ramsey (Crimson Tide)
Buyers of securities usually think prices will increase. However, buyers purchase from sellers who likely think prices will decrease. Same transaction, two competing viewpoints. Regardless of your position, you're better off understanding what the other side of the trade is thinking. Developing such balanced perspective is central to effective financial market thought process.
Effective market participants understand the competing viewpoints.
Markets, Bulls, and Bears
Like any market, financial markets are places where buyers and sellers meet. Buyers and sellers may be trading stocks, bonds, real estate, commodities, currencies, or other assets.
Why do buyers buy and sellers sell? Generally speaking, buyers purchase an asset because they think its value will increase. This optimistic perspective is often referred to as being bullish. Conversely, individuals sell an asset because they think its value will decrease. This pessimistic perspective is often referred to as being bearish.
It is important to realize that bullish and bearish perspectives necessarily coexist in financial markets. After all, a buyer (bull) purchases an asset from a seller (bear), and vice versa. For a transaction to occur, someone must be sufficiently bullish while someone else must be sufficiently bearish. Studies of successful financial professionals suggest that they often possess superb capacity for grasping competing market perspectives and for applying them towards investment and risk management strategies (e.g., Schwager, 1989; Soros, 1987; Steinhardt, 1998).
Minyanville founder and CEO Todd Harrison created a group of animated critters to help identify and express the perspectives of buyers and sellers. Hoofy is the resident bull of Minyanville--the optimist who sees the glass as half full. Boo is Minyanville's resident bear--the pessimist who sees the glass as half empty. Together, Hoofy and Boo symbolize the balanced perspective that Minyanville seeks to provide.
Todd and other Minyanville professors frequently integrate Hoofy and Boo into their commentary (here, here, here, here). By asking questions such as 'What would Hoofy and Boo think about this particular situation?' the professors are more apt to consider viewpoints of both buyers and sellers when assessing market environments and making financial decisions. Use of such 'metaphorical imagery' and associated storytelling can increase rates of knowledge transfer in experiential learning environments (Swap et al., 2001)--particularly for online learning venues (Chen & Wells, 1999; Wolfe, 2001). Financial website commentary that contains metaphorical imagery likely helps learners develop market awareness (Ford, 2006; Ford, Kent & Devoto, 2007).
Minyanville's critters, therefore, are meant to help develop balanced perspective--a necessary factor for effectively navigating financial markets over time. At Minyanville, this is commonly referred to as seeing both sides of the trade.
Whenever buyers and sellers meet in a market, there is always a 'bullish' and 'bearish' case. Before initiating risk in either direction, smart market participants want to understand the other side's viewpoint.
Chen, Q. & Wells, W.D. (1999). Attitude toward the site. Journal of Advertising Research, 39(5), 27-37.
Ford, M.W. (2006). Outside the lines: Exploring student use of web-based vicarious learning about financial markets. Journal of Business and Leadership, 2(2): 325-333.
Ford, M.W., Kent, D.W. & Devoto, S. (2007). Learning from the pros: Influence of web-based expert commentary on vicarious learning about financial markets. Decision Sciences Journal of Innovative Education, 5(1): 43-63.
Schwager, J.D. (1989). Market wizards. New York: Harper Collins.
Soros, G. (1987). The alchemy of finance: Reading the mind of the market. New York: Simon & Schuster.
Steinhardt, M. (2001). No bull: My life in and out of the markets. New York: Wiley.
Swap, W., Leonard, D., Shields, M., & Abrams, L. (2001). Using mentoring and storytelling to transfer knowledge in the workplace. Journal of Management Information Systems, 18(1), 95-114.
Wolfe, C.R. (2001). Plant a tree in cyberspace: Metaphor and analogy as design elements in web-based learning environments. Cyberpsychology and Behavior, 4(1), 67-75.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
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