I know little about the stock market, but investing in stocks seems pretty much of a crap shoot, since it appears that a good many, but surely not all, investors buy and sell on the basis of emotions, which run the gamut from euphoria to panic, and a soupçon of research. I am told by experts that, in the long run, investments in stocks produce the best results, but that one should have a balanced portfolio, because as some investments go up, others go down, i.e. stocks versus bonds. That's in the long run. And yes, it's true that in the long run, we are all dead, and we can't take it with us.
By temperament I am not a risk-taker, but it seems to me that during a sell-off is the time to buy stocks at bargain prices. It's knowing when the bottom is near that's sticky. Just when do you jump in? I tend not to follow the herd, buying when everyone is buying, and selling when everyone is selling. I'd do the opposite. Anyway, Grandpère does most of the investing under the guidance of a trusted friend and what he reads around and about, but before he makes changes, he usually discusses them with me, and I give him my sage advice which he follows sometimes and other times not. But I digress.
An article by Michael Santoli from yesterday made a great deal of sense to me. Investors who headed for the fainting couch during the precipitous drop may wish to read...or not. The article is reality-based, so Republicans may not be interested.
Like anything complicated, a dramatic market move is inevitably driven by things we know, things we don't, and things we know that just aren't so. The past two days' 3.5% stock sell-off has had an unusual volume of sloganeered causes pinned to it, making it all the more important to figure out where the obvious factors deviate from the valid ones.What else besides the reelection of the president might have been at play in the sell-off?
The electionYes, get that one out of the way.
President Obama's re-election was a close enough call as of Tuesday morning that a significant number of investors clearly set up a tactical bet on a Romney win.
The fiscal cliffIf you read nothing else at the link, please read the section on the fiscal cliff.
This impending expiration of some $600 billion worth of annual tax cuts and spending measures, arriving Jan. 1 unless Congress acts, has gone from obscure preoccupation of economists and Washington wonks to a full-blown public obsession in about 72 hours.
EuropeI've heard and read that the European economic troubles have nothing to do with the drop in the Dow, but I don't believe it, and neither does Santoli.
The resurfacing of concerns about the European economy and the progress of the Greek bailout and general sovereign-debt firewall there might be the one factor not getting enough credit for the market queasiness.
Market technical cluesIf the president is to be blamed, I'd like to see the buck stop with him because of what he's actually done besides get reelected, not because of mistaken perceptions - that he is a socialist (which is laughable), or because he's black (yes, racism is in the air), or because the majority of people in the United States had the temerity to reelect him to office against the wishes of a vocal and angry minority. I'm not above faulting the president for his policies and actions over the last four years, for I have done so more than once, but I'm thoroughly sick and tired of him being blamed for all the wrong reasons, especially by those who do not and will not consider truths and facts that do not fit into the fantasy world they have created for themselves. Witness their shock and disbelief that Obama was reelected in the face of late polls that showed him ahead.
Stocks were showing waning momentum well before the bleating about taxes and cliffs got loud this week. Yesterday the Standard & Poor's 500 sagged below its 200-day moving average, which many market handicappers believe means the market's prevailing trend is no longer up.
Image from Wikipedia Commons.
There is a rational reason why the re-election of Obama is a bad thing for the economy--it guarantees another two years of partisan deadlock and Republican extremism. The chances that we will go over that fiscal cliff are probably a lot higher now than they were a week ago. And of course there's no chance a Republican Congress and White House will change taxes and regulations in the way Wall Street would like.
ReplyDeleteI've got an even darker view of the stock market than you do, Mimi. At the moment, I don't have any money in it, even via my 401k plan.
...it guarantees another two years of partisan deadlock and Republican extremism.
DeleteMaybe not, kisnevi. The president and the Senate hold stronger hands now. Even in the House there was a marginal increase in their numbers. I hope the president and the Democrats hold the line. You may be right to move your money out of stocks, but we've been through tough times before, and what I said of the market in my post remains true in the long run, and, if I have my way, we'll be looking for bargains to buy. There's no doubt that the road ahead is rocky, and the Republican movers and shakers will make it as difficult as possible to prove that reelecting Obama was a huge mistake, even so far as taking the economy into another depression.