The Strange Connection Between “Haircut” And The Stock Market

Buy! Sell! It’s a bull market, no, it’s a bear market … wait, which animal do we want in the market?

The stock market has the potential to send hearts (and bank accounts) soaring one minute and plummeting the next. As a long-term investment strategy, it’s historically been one of the best ways for investors to grow their money, but it can also be an intimidating endeavor. Not only is there the potential for financial loss, but also the jargon surrounding it can be confusing.

While you may recognize the word recession, do you know what a black swan is? And how does getting your hair trimmed relate to the stock market? From haircuts to animals, the stock market is loaded with curious, and sometimes confusing, lingo.

After all, as Benjamin Franklin famously said, “An investment in knowledge pays the best interest.” Read on to see the connections between these terms and the infamous stock market.

bear market

What goes up, must come down, and in the case of stock prices sliding down, we call it a bear market. A bear market is “characterized by falling prices; the opposite of a bull market.”

The origin of the term isn’t quite clear, but according to some sources, it goes back to the sale of bearskins. In the 1700s, middlemen would sell them before they actually had them in hand and then hope that the price would fall and they could purchase them for less. Those traders came to be called bears, or, as described in The Tatler in 1709, someone who “ensures a Real Value upon an Imaginary Thing.”

bull market

On the more profitable flip side, the term bull market is used when stock prices are rising. But why is bull used as the opposite of a bear when they are both hefty animals with four legs, fur, and other traits in common? 

That animal choice, sadly, may stem from the fact that people used to watch bull-and-bear fights for entertainment, in which the two were pitted against each other. According to some speculation, bull was chosen for rising prices based on the way it attacks—with its horns up, as opposed to a bear that swipes down on its prey.

Bullish can also be used as an adjective to mean hopeful. 

black swan

Another animal reference in economics comes in the form of a black swan, which can be as formidable as it sounds.

Besides the actual bird, a black swan is defined as “an occurrence or phenomenon that comes as a surprise because it was not predicted or was hard to predict.” When it comes to the stock market, that’s not usually a good thing.

Examples of financial black swan events include the dot-com bubble of 2001, the 9/11 attacks, and, more recently, the coronavirus pandemic of 2020. The term stems from the fact that people thought all swans were white before they spied the Australian black swan—the cygnus atratus.

haircut

A slang stock market term, a haircut refers to “the value of an asset deducted to account for a possible fall in its value before it can be liquidated.”

You typically will hear about a haircut if you’re using your stock portfolio for collateral. The term is also sometimes used when referring to an amount borrowers pay back to lenders when it’s less than the amount owed.

For example, some creditors may take a haircut from a borrower rather than going to the effort of pursuing the entire amount of a debt.

bourse

If you hear someone speaking of a bourse, they’re likely referring to a European stock exchange.

Evidence of the term dates back to the early 1800s and comes from the French term for purse, which stems from the Latin term bursa for “a bag, pouch, or purse.”

Bonus term: in financial speak, exchange simply means a place where stocks are traded.

recession

A recession is defined as a time of economic contraction, and experts say it can be one of the best times to purchase stocks, as their price is expected to rise when the recession ends.

Evidence of the term is first found around the mid-1600s, stemming from the Latin word recessiō, which meant “to go back or withdraw.” The root recess means “temporary withdrawal or cessation from the usual work or activity.”

A recession is different, however, than a depression. Click to the next slide to see how.

depression

When it comes to economics, a depression is defined “as a period during which business, employment, and stock-market values decline severely or remain at a very low level of activity.” In other words, it’s bad news all around. 

It’s usually more hard hitting and longer lasting than a recession. Evidence of this term goes back to the mid-1300s, stemming from the Latin word dēpressiō, meaning “to press down.”  

volatility

When we’re talking volatility in the stock market, we’re talking about those assets that tend to go up and down quite drastically.

Evidence of the word, whose first definition is “evaporating rapidly; passing off readily in the form of vapor,” dates back to the mid-1200s, stemming from the Latin term volāre, which means “to fly.”  

May the value of all your stocks fly in the upward direction.

day-trading

If you like to carefully watch the stock market and frequently buy and sell shares on the same day, you’re day-trading; some people even become full-time day-traders, trying to make a living beating the market.

While the practice has increased in popularity as the internet has made it easier, day-trading actually dates back to the late 1800s and the advent of the ticker tape … which brings us to our next term.