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What does the phrase 'bull markets climb a wall of worry' actually mean? It's best to think of a bull market as a conversion process. Shares rise when the majority of investors switch from being market cynics to market supporters. But some investors started to look beyond the worries and noticed the market's undervaluation -- and kicked off the current bull phase. However, as share prices began to rise after March 2003, most shareholders -- scarred by the market's recent losses -- remained wedded to their doubts. Though the market has done well in the past two years, the 'wall of worry' remains high. At the moment, popular opinion says don't invest because of the record oil price, possible interest rate hikes, the weak US dollar, higher taxes post-general election, a toppy housing market, pension deficits and terrorism. Nevertheless, these high-profile fears suggest the bull market conversion process will continue. Their presence indicates there are still many bears around -- and all are potential converts capable of fuelling the market to new highs. More: Two Years Of Bull... And The Market Still Looks Cheap | This Time It's Different
Rewind to March 2003, when shares were at rock bottom. There was plenty to fret about back then, not least falling profits, accounting black holes and the imminent Iraqi war. Everyone who wanted to sell as a result of the preceding bear market had already done so.
Despite the gloom, share prices increased rapidly throughout 2003 and 2004. The momentum began to reassure market sceptics that they're fears had in fact been overdone. Gradually, more and more doubters became believers and pushed the market higher.
Only when all the market's non-believers have been converted -- when the 'wall of worry' has been conquered and pretty much everyone agrees that shares can only go higher -- will the bull market end. Indeed, that's the point when market supporters will slowly start to revert back into cynics. Given today's many anxieties, no explanation of 'bear markets descend a slope of hope' should be due anytime soon.