Why 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.


  1. Rafael Montoya says:

    When bears succeed in their predictions they can claim “I told you so!” and if they fail they may just add “… but it won´t last”. They usually do not lose face.
    However, a bull prediction that turns correct only gets a “the market had already taken that into account” acknowledgment but if it fails then someone gets fired (before a bear, always).

  2. For people like Barry Ritholtz I think they stay bearish as a marketing gimmick. If less people are bearish then position yourself as the token bearish pundit. There’s really not much accountability in this industry so when a recession does finally hit everyone will forget that the Barrys were wrong for 10 years, and they’ll get to go on CNBC.

  3. Pete — Barry-specifics aside, that’s an interesting argument. By that logic, however, shouldn’t most pundits be bearish, as that is a better marketing move? Instead, however, it sure seems like most pundits are bulls, which doesn’t make sense as a personal “brand”.

  4. I don’t buy that argument one bit. Lots of people make compelling Bull cases, and there are plenty of people that make awful Bear cases.
    And like most things, its not black and white. I have been appropriately Bullish on Japan, Hong Kong, Brazil, Korea, Australia, Canada, Oil, Gold, (and other commodities) and the Euro for quite some time.
    And while the US Equity markets have underperformed nearly every market on the planet, our Global Bullish/Us Bearish stance has us outperforming the SPX by 1500 basis points.
    There is a much longer answer (and its a post I am only half finished writing) , but the shorter version is: It’s another Wall Street myth . . .

  5. While is makes the most sense to make the best rational argument in favor of the bull camp or the bear one, in the end the mass appeal of one’s prognostication will come down to two main things. One will be perceived authority. The other is the ability to play to the emotional leanings of the audience. A bear will not get much play when the greed side dominates the market psychology, just as the bull won’t play when when the market is scared.

  6. More for the list:
    1) People love conspiracy theories — so stories of how shipments, revenues, mortgages, inflation, whatever are actually much worse than “we are being led to believe” and are being maintained by some cabal for their own evil ends always seems at least slightly possible.
    2) Most people ain’t rich and don’t run companies. Saying some CEO who makes a million a year is a liar and a thief will always have an audience. (This is not quiet the same as your #4. It isn’t striking down tall poppies — it is belief that only evil people get rich. See 19th C “Robber Barons.”)
    3) More philosophically — bear stories have better narrative arc. There are bad guys and good guys, climax and resolution, theme and motive. Bull stories of “this copper company will make $1.41 next year as prices rise” are less fun.
    4) Balance — there are thousands of well compensated promoters of stocks who only ever say the bull story. Nature abhors a balance, so bear stories exist because they fill a useful dialectic role…even though over the long run bears get smooshed by bulls.

  7. I don’t know about influence, but I will say as investors it is generally easier to be bearish. The reason for that, I would assume, is that all good investing is value investing, and when talking about stocks that one expects to rebound, it’s about figuring out when the market has discounted the bearish situation appropriately. Thus, it will be much easier to articulate the more pessimistic reality, and much harder to know when that is fully priced in.

  8. There are plenty of excellent arguments on the long side – it’s just that they get lost in the crowd. The short side is kind of lonely – therefore, he or she is more apt to make sure the discussion is compelling enough to hold the counterparty’s attention.
    It’s the ones who are quiet right up to that three standard deviation move that you have to watch out for.

  9. The paid pundits are bullish, but the website proprietors (like Barry, Minyanville, Safe Haven, etc) tend to be bears. The bears are secretly bulls who want the market to go lower so they can buy cheaper.

  10. I think bears have been right more often than they seem… with one extremely large caveat. We’re looking back on a time period with tremendous growth in the monetary base relative to the real economy. Anything priced in an inflating currency has a pretty significant wind on it’s back.
    Eg. By any sane measure, Zimbabwean stocks have taken it in the pants, except in their local currency.

  11. Paul wrote: ‘ Essentially I’m arguing that bears have influence disproportionate to their accuracy, and I want to noodle why that might be.”
    Let’s suppose that is true and we have two 2 x 2 covariation tables:
    1. Table (Bear) with the columns being influence and no influence, while the rows accurate and inaccurate.
    2. Table (Bull) with similar columns and rows.
    Then I understand your claim to be that if we take all the pronouncements of bears and bulls, we will find the following:
    In table 1, prob(accuracy|influence) is greater than table 2 prob(accuracy|influence).
    Is this just because it is easier to count when bad things happened? Or is it because it is harder to count the influence of good reports?
    Have I captured at all your intuition?
    Your thesis is that

  12. valleyslave says:

    hm…or maybe the bear arguments are getting a little too convincing an we’re all searching for ways to marginalize them?

  13. I’ve thought about it some more, and came away with this: Its not that the Bears have the best arguments – its that they have the more interesting arguments.
    Consider: The dominant view is typically Bullish, and given the bias over the long term and the miracle of compounding, this makes sense.
    However, Wall Street (and other asset gatherers) are notorious perma-Bulls, and tend to worry less about capital preservation and more about protecting their fees and gathering more assets. They are often all full of sunshine, because that is the posture that maximizes revenue.
    Government officials (Prez, Tres Secy, Fed Chair) tend to spin data very positively, as they want to get re-elected.
    The MSMedia – especially now that is has become so consolidated – has generally parroted the government and Wall St views. They no longer have the manpower to put well trained economic reporters on that beat (their are a few exceptions).
    Pushing back against the dominant meme — especially one that is lazily researched and hastily reported — is just far more interesting . . .

  14. People are pretty good at responding to a problem. Most bearish arguments assume that people cannot adjust, problems cannot be addressed,and things will go on pretty much as they have. Many problems get solved. Go back and read a newspaper from 40 years ago, it is filled with problems that simply never amounted to very much. Most of the bearish problems will end up in the same scrap heap. Good long term investing means figuring out the real issues.

  15. Max Return says:

    Hey, these days is so easy to laugh off the pessimists. Now here is a real bear as reported by Marketwatch: http://tinyurl.com/32g9vg

  16. One more point: Bearish arguments are usually more interesting because they focus on the causes and the effect is left to each person’s imagination. It’s like in a horror movie where you rarely see the scary guy.

  17. Why are bears’ arguments more interesting? Because they are made by world-weary skeptics who know that most market puffery by bulls is based on pure wishful thinking. However the longterm secular trends have been up…so bears are invariably wrong in the short-term. What’s always surprised me is how millenarian bears think they have to be to get attention. Today we know just how bearish Goldman was on the sub-prime sector. However they didn’t close up shop. They shorted the hell out of the bad paper. Bearish bets on newspapers, homebuilders, TV broadcasters would have paid off nicely. Not so much for those trying to pick the top for GOOG or oil. Bears need to keep their balance as they are going downhill.

  18. It’s not that the bears’ arguments are more persuasive. It’s that more people fall into the group for which the bears’ arguments are persuasive.
    A typical investor cannot afford to lose the portion of his portfolio that is in equities, or even to have it decline very much in value. The fixed income portion is not enough to carry him through a long dry spell and he relies on the equities to sell in emergencies. Therefore, if you tell him that the market is going to fall, he will sell his stocks and hold cash and bonds.
    Contrast that with a very wealthy investor. If the market crashes, he has to rely on the billion in 30 year Treasuries in his fixed income. Sure, he might have to put off buying the island next year, but he’s not going to be on the street. He can afford to wait five or ten years for the stocks to come back.
    Of course now, with so many “safe” bonds turning out to be impossible to value, even wealthy investors might be listening to the bears.

  19. Paul — A good question and a timely one. You have stimulated some good comments, and also my own response: http://oldprof.typepad.com/a_dash_of_insight/2007/12/the-triumph-of.html

  20. Most BEAR arguments that I read on the blogs are conspiracy-filled rants by Tin Foil Hat conspiracy theorists who hijack blogs for their own gratification …. every rally is due to : Fed Repos ….. Short-covering ….. tainted Economic figures ….. foreign Central bank manipulation …. Plunge Protection Team ….. ( of course , there’s never any natural buying , the buyers are all “dolts” )
    It’s actually comical , and I use these comments as a great sentiment “reverse indicator” ….. there are 3 blogs that are the “worst ” ( best ? ) , but I won’t sully their reputations as I need them to make $

  21. Are you talking about now or always? A falling dollar, higher oil prices, mortgage mess, negative press (when a Republican is in the WH, the MSM present more “feeling” articles than hard facts, when the party switches so does the news), and political incompetence from top to bottom in both parties, makes the bear story sound better.
    As a side example, take outsourcing. People think it is destroying America, but even before the low dollar attracted all the factories than plan to come here in the next few years, the U.S. has been gaining jobs.

  22. One word: weather. Do ratings and public interest soar when we’re predicting hurricane landfall, blizzards, etc., or when we say it’ll be sunny and mild? Same with international relations, and same with stocks and mortgage debacles and credit squeezes that will (potentially) knock our neighbors out of their homes and onto the street, or at least out of retiring earlier than we will be able to. Bad news (especially the threat thereof) piques our human interest, plain and simple – schadenfreude, nothing more.

  23. Not to dismiss the merits of the bearish views prevalent today, but broadly speaking, hasn’t it been shown that people’s reaction to negative events is twice as strong as for positive events?

  24. The only way for a forecaster to be recognized in stock market forecasting is to beat buy-and-hold and beat other forecasters. Otherwise, you won’t ever be noticed. If you are constantly bullish, you’ll never beat buy and hold, so you have to be bearish at proper times. What’s interesting is that, at least according to the research paper at the bottom of this post, gurus have to take it another step further. In order to really stand out, they have to exaggerate the probabilities of market events. It’s like this article from Business Week in December 2006.
    “Last year, Mr. Ritholtz semi-famously ended up as far and away the most-bearish of 76 forecasters surveyed by Business Week, calling for a 36% plunge in the Dow by the end of 2006.
    “That forecast didn’t quite work out, but Mr. Ritholtz also expected a “parabolic” rise in the Dow before the crash — he got that part right, at least. ‘What we didn’t get right was the timing,’ he says.”
    As Barry notes, he has made his clients money by being short US, long global. But that meme is BORING. It is far more interesting, and it gets a lot more attention, to proclaim that the market is going to drop 36% in a year.
    Research paper: Probability Elicitation, Scoring Rules, and Competition among Forecasters