Why Do Bears Always Have the Best Arguments?

Even though the stock market has rightly been called the triumph of the optimists, with bulls stomping bears over and over for one hundred years, stock market bears not only haven't gone away, but they generally have the most compelling arguments. Their points seem so damn plausible, level-headed, empirical, and reasonable, while bulls come across as starry-eyed idealists.

Let's consider some reasons why that might be:

1. Things fail more often than they succeed. Pace availability heuristics, it is easier to think of examples of things failing than succeeding, so it gives bears more fodder.
2. Bears have the past, and bulls have the future. Bears get to argue from data, while bulls argue from what might happen.
3. Apocalypse is seductive. There is something about the thought of imminent mass ruin that really gets people's attention, as has happened with the overdone coverage (hello, Matt Drudge!) of the current credit problems in the market.
4. There is a Puritanical urge in America wherein people want to believe they (or better yet, their neighbors) will be punished for their prior success, etc., so it stands to reason that stocks will punish people after they make them a lot of money.
5. Bears have been generally wrong for so long that they have to know how to tell better stories.

Feel free to add more. You too, Barry.

[Update] A few people (in email etc.) are missing the point, in part. Essentially I'm arguing that bears have influence disproportionate to their accuracy, and I want to noodle why that might be.

Comments

[Norm Conley:]

I think another reason bearish arguments seem "smarter" is myopic loss aversion, which holds that people hate a given amount of loss roughly 2.5x as much as they like the same amount of gain. Bears postulate that losses are imminent, while bulls forecast gains. But the bearish theses are 2.5x as horrifying to investors. The bears may or may not have the best arguments, but they definitely have the scarier arguments.

2007 Dec 14 08:03 AM

[traderone:]

You have completely failed to grasp the essentials of the bear argument. You might just as well say the same thing about those who caution you against the dangers of walking across the road. It isn't because those who caution against the dangers are "wrong" - even 99% of the time - that their advice is not good.

You are just representative of the typical permabull - he who cannot - or will not - envisage the presence of the bear. As any futures trader will tell you, if you do not acknowledge the constant threat of falling prices and turn it to your advantage, you will be toast. Why do you imply that "up is good, down is bad" just like all the others?

It is, in fact, much easier to be a bear at the right time than a bull at the right time: in a bear market some 95% of all stocks drop, thus dramatically augmenting your chance of success, whereas in a bull market only some 65% of stocks rise, making the selection process much more arduous.

Oh and yes, by thet way, bears DO tend to be much more intelligent than bulls. Just consult the Yahoo boards!

2007 Dec 14 10:03 AM

[Go West:]

What really bugs me is the crackpots who make claims each and every year that the markets will go down. However, perma-bulls do tend to be more vacant upstairs.

For a good laugh, have a look at this prema-bear's site: thelongwaveanalyst.ca

2007 Dec 14 12:27 PM

[Airelon:]

Brilliant synopsis, and I would agree 100%

2007 Dec 14 07:23 PM

[Airelon:]

I also am a futures trader (not investor, trader). The main difference is with Futures is that the arena is zero to negative sum. The stock market, through dividends, stock splits and buybacks represents wealth creation as _perceived_ by the general population. So to try to take just a 'just short it all' mentality to the stock market is damaging to public perception, and therefore - the economy.

God, that's just basics. I swear, people should have to take a basic competency test for trading the markets. Too many get involved in what they do not understand.

2007 Dec 14 07:59 PM

[tjschoenlein:]

The doom & gloomers are everywhere in life.. if not bugging the stock market they find homes wherever one goes. When I was a kid we used to call them the " chicken littles ".. the sky is falling! the sky is falling!
Of course in time the sky does fall and they run with this forever.
Just a view from a Missouri boy.

2007 Dec 16 02:58 AM

[bert:]

hmmm type spy and qqqq on the weekly chart and look back about EIGHT years. I guess the bulls are usually right??? NOT. Times have changed the US is not free anymore. Economic growth is 2% and the PEG of the US markets is among the worst in the world. Why because we have allowed socialism. Investors just don't get it. They watch the fed funds rate as if that is what drives the economy all the while it is the tax rate and dollar printing rate that is far more relevant. Ask yourself why do the major networks mention the Fed funds rate more than 100 times a day but never the tax rate or dollar printing rate?

2007 Dec 17 04:00 AM

[bert:]

Two other points: Measured in say oil or ore or Euros the markets are down over, I dont know what, the last 20 years? and They never ever will exceed the 2000 highs for the NASDAQ! So the bears are right! And the bears never said they would be right forever! And if they print money stocks should go up and they did but now they are printing like crazy and they wont go up.

2007 Dec 17 04:44 PM