People are constantly asking me why is the stock market going down. What is causing this bear market? It is relatively simple so don't ask an economist. He will give you a 200-page answer that is undecipherable. Can you understand Mr. Greenspan?
Let's first realize what it is that makes a stock price go up. The basic reason is that the investor thinks that the company will make a larger profit and pay a good dividend - one that is better than it is now doing. People buy in anticipation of better earnings. Really, it is that simple.
Conversely, when a stock starts down investors think the company can no longer sustain its sales and earnings and that the current price is too high so it is sold. Every other reason you hear is hype, smoke and mirrors. Last year we saw more than 1,000 stocks on the Nasdaq exchange lose more than 90% of their value. Many of those stocks have lost even more this year and scores of them are either out of business or been merged into other companies. Their anticipated sales and earnings never showed up.
When a large section of the market is adversely affected with shrinking sales that action many times begins to slip over into other sectors. Last year it was the technology group as a whole that suffered the most. This year it will be almost all the New York Stock Exchange stocks. We have just witnessed the biggest point loss in one week in NYSE history. In the long run it is going to go much lower after its rally.
The market was already headed down before the World Trade Center tragedy and this single act triggered a great amount of emotional selling. The bear market, which has been with us for about a year, would have gone down to the September 21, 2001 lows anyway even if the New York disaster had not occurred.
One thing investors do not like is uncertainty. People want their money to be safe so they will sell some of what they have and will not buy. Those with 401Ks can transfer to money markets. It has become very evident that almost every type of business with a few exceptions will have less sales and shrinking profits. It is not a time to buy. The talking heads on TV are telling you that you can't afford to be out of the market. Oh, yes you can. The best place for the next several months is in a nice safe Money Market fund or some type of short-term bond no-load mutual fund.
Until the market uncertainty goes away and profits start improving for a majority of companies it is best to maintain a cash position. That may not be until the middle of next year. In the meantime cash is king. Don't let anyone talk you into buying anything. The bear is still loose. Don't let him gobble up your investments.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
All stock trading and investing methods must deal with the... Read More
Having lived aboard a sailboat for 2 years I was... Read More
I don't know what kind it is, but I saw... Read More
The spring-loaded rat catcher is the ultimate low-tech device invented... Read More
Have you ever thought of investing? Do you have a... Read More
Just 30 years ago the stock market was a shadow... Read More
I would like to share with the reader an article... Read More
In my opinion, due to the volatility of stock market... Read More
Stock investment advice is easy to find. Do you get... Read More
It depends on your level of understanding of the market... Read More
Before you buy another car you walk around the lot,... Read More
People are constantly asking me why is the stock market... Read More
After some forty years of banking and investments, I retired... Read More
Just about now everyone is confused as to which way... Read More
Four blind men were asked to give a description of... Read More
The Dow TheoryCharles H. Dow... Read More
If you don't know where you are going any road... Read More
(1) CHK stock price $16.74, NAV $32.5CHK is my favorite... Read More
Mutual funds by definition are a mixed bag of stocks,... Read More
When most analysts, financial planners, fund specialists and investors try... Read More
One of the most believed bits of conventional wisdom from... Read More
Every day I hear from the "experts" on CNBC-TV and... Read More
Any online investor / trader seeks an excellent off or... Read More
Buy high and sell low -- It's not a typo.Millions... Read More
It is commonly reported that the stock market averages about... Read More
What does it mean to short a stock?This means that... Read More
A colleague of mine just returned from a scuba diving... Read More
Before they go over the cliff to their destruction these... Read More
Professional stock options traders use the term lean to refer... Read More
In one of my previous articles (Investing in the stock... Read More
We all know that emotions control every decision that an... Read More
I am hearing predictions by brokers, financial planners, talk show... Read More
You may have wondered why your mutual funds have been... Read More
This is an extract of an article which was first... Read More
In 1960 an engineer working for a watch company in... Read More
In 1960 an engineer working for a watch company in... Read More
The basis of diminishing return discussions surround such simple notions;... Read More
A recent cartoon in my daily newspaper showed two guys... Read More
If you have been dealing with mutual funds for any... Read More
Every broker and financial planner will tell you that you... Read More
Are hedge funds a suitable investment for you? Hedge funds... Read More
What is leverage?Here is a definition of leverage from an... Read More
Do you have a nest egg? You know, a place... Read More
The bear market that showed up at the end of... Read More
When most analysts, financial planners, fund specialists and investors try... Read More
Why? Because I am going to shatter your conventional wisdom... Read More
Now that you have some money burning a hole in... Read More
I would like to share with the reader an article... Read More
The bulls and bears of the stock market are both... Read More
One of the things people are always asking me is... Read More
I made my very first investment in the stock market... Read More
Have you been listening to the talking heads on CNBC-TV?... Read More
AS BUILDERS BEGIN WORK ON THE FREEDOM TOWER in New... Read More
If you're like many investors who squander those small dividend... Read More
(1) Stock Market is Tough Place to Make Any Money... Read More
There is a famous cliff on the ocean in Acapulco... Read More
Inverted interest rates? What's that? Who cares? Even if you... Read More
In today's volatile and confusing stock markets everyone is searching... Read More
If there is one term over-used when talking about making... Read More
On November 17 I bought 7 different mutual funds and... Read More
The stock market is very unstable at this time going... Read More
You may have wondered why your mutual funds have been... Read More
Unfortunately, most of you who are reading my column are... Read More
Profitable day traders recognize that momentum trading is among the... Read More
If you are fed up with early redemption charges and... Read More
Are you attracted to the idea of being in control... Read More
Stocks & Mutual Fund |