Bulls and bears have cornered the market on Wall Street animals for so long that professionals and casual investors alike never think twice about whether these large, slow-to-react beasts are the sole and rightful heirs to market metaphors.
As we come out of a tumultuous start to the 1990s, perhaps it is time to make way for a newcomer in the Wall Street bestiary.
To set the stage first, however, a brief overview of the long and venerable history of the bull and bear is in order, courtesy of the New York Stock Exchange archives.
In the early 1970s, "bear" described investors who believed that stock prices would fall and so sold stocks they did not own - profiting later by delivering these stocks after a drop in price.
According to author Kathleen Odean, this position was known as being "bare" of stocks ("High Steppers, Fallen Angels, and Lollipops," Dodd Mead & Co., New York, 1988). Thus was born the notion of "bear" on stocks.
Selling the Bearskin
Another explanation, by editor James E. Buck in "The New York Stock Exchange in the First 200 Years," Greenwich Publishing Group, 1992), refers to the old proverb, "Don't sell the bearskin before the bear is caught."
This saying described hunters who collected payment for a bearskin before going hunting, then died before delivering the goods.
Traders who sold short, expecting a fall in prices, became known as "bearskin jobbers." The origin of "bull" had simply come to mean the opposite of bear in the middle of the eighteenth century.
A Different View
A more popularly accepted understanding of the bull and bear behavior appears to have originated in the 19th century.
According to Mr. Buck, one observer noted, "If a bear finds a turkey on the roost or a man in a tree, he lifts his paws and pulls it down. The bull, on the contrary, lowers his head only to give men and things a decided upward tendency."
Subsequently, stock market investors and the trends were characterized as: a bull market with rising pricing and a bear market with declining prices.
The Bird Dog Metaphor
For all the acknowledged strength of both of these animals, investors have never completely identified with or understood their behavior.
Whether it is the bull lacking in peripheral vision, or the bear who spends half his life hibernating, neither of these beasts represents the perception or agility one would desire for success on Wall Street.
Years ago, while working a field with expertly trained bird dogs in Colusa, Calif., I began to admire these wonderful animals and the skills used in their tasks of pointing, flushing, and retrieving birds.
As a student and practical observer of the stock market always on the lookout for analogies between the stock market and "life," it occurred to me that herein lay interesting parallels.
Working the Field
The successful investment manager mirrors a bird dog in the discovery of a stock idea (the point), deciding to buy or not to buy (flushing), and following the stock selection closely (retrieving).
With these strong visual images in mind, I concluded it was time for casual investors and experts alike to have a new mascot for their beloved and often frustrating stock market.
In general, the bird dog family includes pointers, spaniels, retrievers, and setters.
All of these breeds exhibit some if not most of the characteristics of a good investment adviser: stable temperament, stamina, alertness, self-confidence, obedience, brains, endurance, vigor, and adaptability.
An investor, like a hunter, must decide whether he wants a combination bird dog/house pet (i.e., balanced manager), a specialist (i.e., small cap manager), or both.
Picking the Best Dog
What is important here is seeking to find the best bird dog for the intended results. After all, investment managers, like bird dogs, are not all alike, nor are they equally capable.
But at the risk of overextending the metaphor, the bird dogs of Wall Street are all bred for a single trait critical to success in the market. When we look at this trait, we move from investor to acronym.
BIRD DOG stands for Better Investment Research and Discipline Delivers Optimum Gains.
This idea can be applied rigorously to any investment vehicle from stocks and bonds to venture capital to real estate.
In this scenario, the definition of optimum can be described as getting the desired results within your risk level and diversification.
Wide Variations
Having observed balanced managed account results for 1991, and having seen returns ranging from 5% to 35% (with an average of 25%), it is clear that investment managers vary widely in their judgment and performance.
For example, a lesser return may not necessarily be equated with less risk but rather with poor decision-making.
Conversely, a higher return can indicate the use of better judgment rather than (or in addition to) higher risk. These decisions do not necessarily average out over time.
Stock and bond markets are really markets of imperfect information that require an investor to develop sound reasoning by using sources from both on and off Wall Street.
A portfolio manager with the near-perfect scent of a fine bird dog will achieve consistently better results, as Peter Lynch did for many years.
The determination of exactly which skills and in what proportion make for greater success is possible only with the passage of time - through the observation of trial and error.
Certain breeds of bird dogs will be more adept at one skill than at another. Individual dogs within a particular breed will excel, and the same holds true for fund managers. A manager's results will usually be validated if the track record over time is good. The more successes, of course, the better.
Your Best Friend
Let's face it. The best managers have more antennae finely, tuned to receive accurate information, with built-in systems to filter out the irrelevant data that blurs the decision-making process, in the same way your best bird dog scouts the field with success.
Likewise, if your adviser has not been trained in a demanding environment, the results will be less gratifying.
Peter Lynch has practices and advised that superior stock selection and diversification will be more successful over time than preceding bull or bear trends.
So you can stop swearing at the bull or bear that leaves you confused about the markets and takes your money - a market-friendly bird dog may be your best friend yet.
