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.
Shorting Stocks - The Basics, Part I of IIWhat does it mean to short a stock?This means that you borrow the stock from your broker to sell to a third party. The idea is to buy back the stock at a lower price, returning the shares to your broker while leaving the remaining cash in your account as a profit.
Shorting Stocks - The Basics, Part II of IIAfter the publication of the first part of this two part series, I had a few questions asking if shorting stocks is legal and I will quickly reply with a big YES. Some people believe that shorting shares of American companies is not patriotic or does not seem like the right thing to do.
Trading as a BusinessWhat can I expect to make my first year of trading?We get questions like this one quite often. We find that most aspiring traders don't have a clue as to what to expect from the market.
Bollinger Bands StrategiesThe Bollinger Band theory is designed to depict the volatility of a stock. It is quite simple, being composed of a simple moving average, and its upper and lower "bands" that are 2 standard deviations away.
Peer GroupsWhenever I see mutual fund comparisons in the trade publications and in the financial section of the newspaper they almost always mention a specific fund and tell you how good it is in relation to its peer group. A peer group is a specialized sector of mutual funds that all invest in about the same type of stocks or areas of the world or size of companies or some such categorization.
Why This Bear?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.
Kick The TiresBefore you buy another car you walk around the lot, kick the tires, slam the doors and look at the mileage indicator. That's an odometer.
How To Buy And HoldOne of the most believed bits of conventional wisdom from Wall Street is to Buy and Hold. Any stock or mutual fund should be put away for eternity and never sold.
Rebalance And DiversifyThe stock market has not been very kind to your investments lately. Your broker knows this so you may have received a call from him suggesting it is time to 'rebalance and diversify' your portfolio.
Social InsecurityJust about everything you have been told about Social Security is an obfuscation. That is a big word for convoluted truth or lie.
Risk ControlEverything you invest in has risk so you want to do your research before you put your money on the line.For example, when McDonald's opens a new restaurant (please, don't call it a hamburger joint) they will investigate as many of the relevant facts as possible.
Protect Your 401KChecked your 401K lately? Going back to about a year ago many of these retirement accounts have shrunk by 30%, some even more. What Happened?You have been putting money in for years and your employer may have been contributing to your plan also.
One Way StreetEver turn down a street, get half way and suddenly realize it is one way and you are going the wrong way? Is that the way you feel when you look at your stock brokerage statement?In either case don't panic. You can get out of that one way street by carefully backing out.
Top 25 Growth FundsOn Monday, November 25, 2000 Investor's Business Daily listed on page B1 the Top 25 Growth Mutual Funds for the last 36 months along with their performance for the year 2000 to date. Only four showed a profit this year of 21% and the other three had increases of 12%, 5%, and 5%.
How To Pick A Mutual FundMutual funds by definition are a mixed bag of stocks, bonds and a little cash. Their price per share is the NAV, Net Asset Value of the total amount of money in the mutual fund divided by the number of shares.
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