It may not be the NBA Finals, but as Dallas Mavericks billionaire owner Mark Cuban once quipped, “If you don’t follow the stock market, you are missing some amazing drama.”
As the stock market continues to reach record highs this year, a majority of Americans feel confident about their portfolios and their equity investments. According to a March poll by business channel CNBC, 60 percent of Americans feel confident that their stocks will trade higher this year, even after the survey was completed during a downturn in the market.
The market has seen an extraordinary run since last summer, going from the 10,000s to the high-13,000. Americans are becoming more secure with their financial aptitude nowadays, and realize that regular stock investing over time can result in tremendous returns.
The stock market isn’t without its defects, but a practical, easy-to-understand advice follows the logic that stocks have historically outperformed all other investments, averaging a 10 percent gain in the S&P 500 since 1926.
It’s no real secret that a diversified portfolio over the long run is part of a smart financial strategy. But there are rules to investing, and I believe the new book “How Come That Idiot’s Rich and I’m Not.” offers up some common-sense solutions for everyone who wants to invest in stocks and mutual funds.
Trying to outwit the experts is fruitless. People [who go to Vegas] always tell you about the time they went and won, but they never tell them about the other eight trips where they lost. If you′re a hobbyist picking stocks part time thinking you′re going to outsmart Wall Street, you′re out of your mind.
Robert Shemin, JD, MBA, and Wall Street Journal bestseller, who was once considered the “least likely to succeed,” is a multi-millionaire who speaks to hundreds of thousands yearly, regularly sharing the podium with such financial luminaries as Donald Trump, Robert Kiyosaki, David Bach, Suze Orman and Tony Robbins. Shemin has worked with high-net-worth individuals for Goldman Sachs, helped create four companies, and been involved in over l,000 real-estate transactions. Find out more about Robert at http://www.claimmybonus.com
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January 31st, 2008 by admin
To be highly accurate in any pursuit, you have to carefully observe and analyze the object at hand. The stock market is no different. The idea may seem simple enough, but even with their hard-earned money on the line, you′d be surprised at how often people argue with the facts that are right in front of them. Many investors are sometimes misled by the shouting of opinions and prognostications. Listening to opinions about the market is one of the riskiest things you can do as an individual investor. You want facts, not personal opinions. If there’s one lesson most learned from the 2000 three-year bear market, it’s that arguing with the facts and simply hoping for the best is the easiest way to lose your shirt. Let’s start by dissecting market activity and talk about what it’s trying to tell you.
The Interplay of Price and Volume
The stock market is governed by the same forces as individual stocks: supply and demand. Throughout history, the best way to determine the market’s health and direction has been to view the daily price and volume action of the three major indexes: the Dow, the S&P 500 and the Nasdaq. Volume bursts in these key indexes show where mutual funds and other institutional investors, the biggest driver of stock prices, are moving.
In an up-trending market, you normally want to see prices and trading volume rise somewhat in tandem. This shows a market under accumulation, with more positive volume than selling volume: a good sign. On down days, in the majority of cases, you want to see volume lessen. This shows a lack of any significant selling another good sign. But take note of days when the market shoots up in price to new highs on lighter volume. This shows a lack of institutional buying, which might be a warning sign.
Even in the best of all bull markets, there will be days on the way up when selling suddenly overtakes buying when an index closes down for the day on heavier volume than the day before. This shows distribution, and it is a potential red flag if that type of action continues to occur. One day of distribution is not enough to turn a rallying market downward, nor is it necessarily cause for alarm. Rather, take it as a signal to start watching the market more closely to see what happens next. Market cycles over the last 50 years indicate that it usually takes three to five distribution days over a period of up to four weeks to turn the market’s uptrend into a downtrend. Every major market top in the past 100 years has revealed this negative price-and-volume action prior to the market’s downtrend.
Many people think of the great crash of 1929 as being a sudden, inexplicable event. Not so. In late 1929, just before the Dow gave way to a selling avalanche, the index posted a flurry of down days, each on heavier volume than the previous session, all of them saying to investors: “Get out.” This activity pinpoints the mass exodus by institutional or professional investors the heart and soul of the market. You might be asking how a market event almost 80 years ago tells us anything about today’s market. The answer is that in the stock market, as in many things, history continually repeats itself because human nature doesn’t change.
The Nasdaq flashed similar warning signs in the spring of 2000, although almost everyone missed it because they were caught up in the predictions and hysteria of the moment. By March 30, the market had logged a series of heavy distribution days, a sign that a number of mutual funds, pensions or other big players were selling stock. Investor’s Business Daily’s market column “The Big Picture” warned people to get off margin, begin raising cash and only remain invested with extreme caution not because of what we thought the market was going to do, but because we were reading what the market was actually telling us day by day. It was telling investors: “Sell.”
An investor who remains inflexible during a confirmed market downturn and argues with the market facts will usually suffer the consequences. The name of the game is to preserve profits you have built up in a bull market instead of riding them back down through a bear market period.
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January 24th, 2008 by admin
The movement of the stock market, its trends, whether up or down, are referred to as the “emotion” of the market. There are specific terms that are used to indicate market movement. A bear market is characterized by the downward movement of the market over a period of time while a bull market is characterized by a consistent upward trend. Likewise, a stock that is doing well is considered bullish while a stock with declining value is referred to as bearish.
Bull and bear references as applied to the stock market in regards to its general conditions or “emotion” are not used to indicate short term fluctuations within the market. A bear market is generally a market where the prices of key stocks have fallen in price by 20% or more over a minimum period of two months. It should be noted, however, that a bear market may see a temporary increase in stock prices though they can not be sustained until the tide changes. On the flipside, a bull market is indicated by the consistent and long term rise of key stock prices.
Historically, the stock market has reflected the state of the nation’s economy. Bull markets have often thrived when the economy was doing well, unemployment was low and interest rates were reasonable. Bear markets, on the other hand have usually occurred during times of the economic downswing or slowdown. In such cases it is not uncommon for investors to lose confidence in the market and companies embark on layoffs an budget cuts. In extreme cases a bear market can escalate an already declining investor confidence due to lowered values of stocks which can lead to a panic driven stock market crash. Likewise, a bull market that is exaggerated can be driven by over enthusiastic investors and a market “bubble″ occurs. This “bubble″ will eventually burst and values will decline, often sharply.
While most gains are made during bull markets, opportunities for gains are present during bear markets. Having an understanding of the characteristics of each type of market will allow investors to incur gains and profit from the trends. Naturally, when the market is bullish investors are more inclined to buy up stocks. The environment is favorable with an economy that is doing well and people may have some extra money that they would like to use to “dabble″ in the stock market. Under these conditions, the supply is cut but the demand is high and this serves to drive prices higher.
A bear market, on the other hand, presents falling stock prices leading investors to seek to unload their stocks in an effort to salvage what they can from their losses. Often, investors in a bearish market will place their money in fixed return instruments such as bonds or mutual funds because they pose less of a risk. As money is withdrawn from the stock market due to stock sales, the supply exceeds the demand and the prices of the stocks are driven down.
Of course, the easiest time to make money in the stock market is when it is bullish. If you can get in at the onset of the upward trend, you can stand to benefit the most by incurring the greatest gains. The dips that occur during a bull market are temporary and are usually corrected rather quickly. However, it is important to understand that the rising prices will eventually begin to decline and the wise investor will learn how to “read” the trends and anticipate the market peaks, thus the optimal time to sell before the market turns bearish.
Bear markets do have some great benefits though because they offer investors the opportunity to buy into stocks at bargain prices. Unlike the bull market where the key to optimum gains is to enter at the beginning, the greatest chance for profit in a bearish market is at the end of the trend. Typically, the prices drop, often substantially, before recovering which presents the investor with a optimal buy in at a low price. However, investors should be prepared to take a short term loss as prices dip just before the upward turn.
Short selling is a popular investment strategy that occurs during a bear market. In short selling, you sell stock that you do not own in the anticipation of a further price drop. This is done so that when the time comes to deliver, you can buy the stock for less than you sold it. Fixed return investments such as CAs and bonds are also used to generate income during a bear market. These “defensive stocks” are safe to buy at any time, regardless of the stock market trends.
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