Bulls make money...

[Donnie]

Bears make money, pigs get slaughtered.  I see this written often, including on this site from time to time (not by WCI, but others).  Where did this phrase come from and what does it mean?  When do bears make money and over what time period?  Who are the pigs getting slaughtered?  If you are a bullish pig, you would be doing pretty well over all long time periods assuming you are diversified.

In case you were curious, here is the performance of the largest bear ETF that I know of.  Not a pretty picture.

 

 

[WallStreetPhysician]

It's an old trading adage. I don't know its origin. Sure the stock market has gone straight up the past few years, so the Bears are getting slaughtered too.

I felt it was used more often by short-term traders (holding period days to weeks) rather than long-term investors. Also there are traders in non-equity markets (e.g. Commodities, currencies) where the term would especially be apt.

-WSP

[Zaphod]

Pigs are people who get greedy. Over leveraged, concentrated, etc...eventually get slaughtered. Diversified doesnt work for pigs.

[WallStreetPhysician]

And the adage reminds traders, whether they are long or short, to be disciplined and not greedy (like a pig).

[Donnie]

I guess I usually see it in connection with the concept of "taking chips of the table."  It doesn't make sense to me.

Does the stock market have a positive expectation value?  I think the answer is yes.

Are long term stock market returns serially correlated (i.e. is the market more likely to go up more often after a down year except as would be expected from a normal distribution of returns with centered around a positive value)?  I think the answer is no.

Bears haven't done well over any lengthy period of time frame.  Here is the chart of the stock market return reinvesting dividends and starting at 100.  If you are a pig who don't take chips off the table are not getting slaughtered, you are crushing it.

If you are playing roulette (i.e. trading), then I would agree that you should get out when ahead.

 

[WallStreetPhysician]

Yes, I've only seen in reference to traders who are thinking in terms of trades that last days to weeks. The adage doesn't make sense to a long-term investor. The long-term trend in equities is up, but traders are trying to make returns uncorrelated to the index (hence many hedge funds like to measure their absolute returns as opposed to their relative returns to an index).

[Donnie]

WallStreetPhysician wrote:

Yes, I’ve only seen in reference to traders who are thinking in terms of trades that last days to weeks. The adage doesn’t make sense to a long-term investor. The long-term trend in equities is up, but traders are trying to make returns uncorrelated to the index (hence many hedge funds like to measure their absolute returns as opposed to their relative returns to an index).

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I admire the hedge fund style - when my kids are beating me at a game, I like to change how the game is scored as well!  Fortunately, my kids are still too small to get it  

[Zaphod]

Donnie wrote:

I guess I usually see it in connection with the concept of “taking chips of the table.”  It doesn’t make sense to me.

Does the stock market have a positive expectation value?  I think the answer is yes.

Are long term stock market returns serially correlated (i.e. is the market more likely to go up more often after a down year except as would be expected from a normal distribution of returns with centered around a positive value)?  I think the answer is no.

Bears haven’t done well over any lengthy period of time frame.  Here is the chart of the stock market return reinvesting dividends and starting at 100.  If you are a pig who don’t take chips off the table are not getting slaughtered, you are crushing it.

If you are playing roulette (i.e. trading), then I would agree that you should get out when ahead.

 

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I've never seen it referenced like that. Only in reference to traders or those trying to really beat the market, and usually involves some element of putting it all on one bet, holding too long to a big winner (chips off the table), or being very risky leverage wise.

Really has little to do with the long term investor. Also just a saying, its cute, but not applicable to many real life situations...unless it involves pigs.

[PhysicianOnFIRE]

I've heard an accountant say "pigs get fat, hogs get slaughtered" when it comes to how you choose to file your taxes. In other words, it may be reasonable to take certain "liberties" but take too many or take it too far and you may be hung out to dry in an audit.

[artemis]

WallStreetPhysician wrote:

The adage doesn’t make sense to a long-term investor.

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Sure it does.  The adage is a warning not to allow greed to drive your investment behavior.  Long-term investors who succumb to greed risk doing foolish things such as taking on more risk than they can actually stomach, becoming over-leveraged, not diversifying enough, or underestimating the amount of money they need to keep in safe, boring short-term investments.

Whether short-term trader or long-term investor, greed is the enemy, because it entices people into taking dangerous risks.

[jfoxcpacfp]

PoF is correct (at least in the South). It's "pigs get fat, hogs get slaughtered" and it's not just referring to taxes.

[Donnie]

artemis wrote:

WallStreetPhysician wrote:

The adage doesn’t make sense to a long-term investor.

Click to expand…

Sure it does.  The adage is a warning not to allow greed to drive your investment behavior.  Long-term investors who succumb to greed risk doing foolish things such as taking on more risk than they can actually stomach, becoming over-leveraged, not diversifying enough, or underestimating the amount of money they need to keep in safe, boring short-term investments.

Whether short-term trader or long-term investor, greed is the enemy, because it entices people into taking dangerous risks.

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I don't know.  I am not trying to channel my inner Gordon Gekko, but some form of greed is the primary driver for almost everything and everyone that is really successful.   Taking excessive risks that are not compensated by the expected returns is not greed, it is not understanding the math.

[artemis]

Donnie wrote:

I don’t know.  I am not trying to channel my inner Gordon Gekko, but some form of greed is the primary driver for almost everything and everyone that is really successful.   Taking excessive risks that are not compensated by the expected returns is not greed, it is not understanding the math.

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One of the primary characteristics of greed (as opposed to mere desire) is that it blinds people to the math.  You can't understand what you refuse to see.  And a lot of people refuse to see that investment risks are real.

[Donnie]

artemis wrote:

Donnie wrote:

I don’t know.  I am not trying to channel my inner Gordon Gekko, but some form of greed is the primary driver for almost everything and everyone that is really successful.   Taking excessive risks that are not compensated by the expected returns is not greed, it is not understanding the math.

Click to expand…

One of the primary characteristics of greed (as opposed to mere desire) is that it blinds people to the math.  You can’t understand what you refuse to see.  And a lot of people refuse to see that investment risks are real.

Click to expand...

Greedy Definition - "having or showing an intense and selfish desire for something, especially wealth or power."

I guess I just disagree.  Is Warren Buffet greedy?  Bill Gates,  Steve Jobs, Jeff Bezos, Rockefeller, Disney, Ford?  If these uber-successful people aren't greedy, why didn't they just stop at "enough"?

In my experience, one of the main things that separates the extremely successful and wealthy from most other people is that they don't have the thought that if they just had xxx, then they would retire, slow down, do something else, ... where xxx is an amount of wealth, business success, etc.

 

 

 

[artemis]

Donnie wrote:

I guess I just disagree.  Is Warren Buffet greedy?  Bill Gates,  Steve Jobs, Jeff Bezos, Rockefeller, Disney, Ford?  If these uber-successful people aren’t greedy, why didn’t they just stop at “enough”?

In my experience, one of the main things that separates the extremely successful and wealthy from most other people is that they don’t have the thought that if they just had xxx, then they would retire, slow down, do something else, … where xxx is an amount of wealth, business success, etc.

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Yes, they are/were greedy.  But what were they greedy FOR?  None of the individuals pursued the paths they chose primarily to make money.  They were greedy for success, fame, power, a sense of achievement, etc.  Not money; the money was a byproduct of their primary goal.  And that makes a big difference.

I still don't think you're truly grasping the point behind the initial quote you posted.  The point of the quote is to remind the reader that money can be made in any market (bull or bear), but underestimating risk (which is what greed for material wealth promotes) eventually leads to financial disaster.  Should your goal be to accumulate the biggest hoard possible, or should it be to secure a comfortable future for yourself and your family?  Trying for the former requires you to risk ending up with little or nothing; trying for the latter is safe and achievable for the average investor.  Ignore the graphs you posted earlier, and remember these facts:  you do NOT have an infinitely long time horizon for investing (at most it's 50 years, in reality it's probably shorter than that), most startups and small business fail, and no one can accurately predict future economic circumstances.  It IS entirely possible for the market to fall hard enough, and stay depressed long enough, to ruin you (and this risk grows the older you get) - and that is true for all markets, not just stocks.

I think you might find this discussion of investment risk and ways to mitigate it enlightening (even if you find you don't agree with the author): https://portfoliocharts.com/2016/04/18/the-theory-behind-the-golden-butterfly/