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- CommentAuthorBlack Monday
- CommentTimeJan 8th 2007
The Washout: "All Is Lost!"
A convenient place to begin our circular tour is bobbing around in the pool at the base of the waterfall: In the depths of despair in a bear market-1957, 1962, 1966, 1970, 1974, 1978, 1982, or 1987. Stocks have just declined 35 percent, say, sliding several percentage points a week for months on end. Near the end of the slide many famous issues
have been cut in half with terrifying speed.
At a major bottom, current business news is usually terrible, and many authorities feel that things are likely to get even worse. There are several spectacular bankruptcies, of international importance. Unemployment is usually up. There is usually some grave unresolved national problem that is bothering everybody. The brokerage business itself is likely to be in the dumps, with many bankruptcies. Big "producers" of the up years have to cut back on their lifestyles. Wall Street's own desperation reinforces the syndrome.
When in a market collapse everything finally caves in during a few catastrophic days and weeks, there is an almost audible flushing effect. Stocks are hurled into the abyss, like the cargo of a sinking ship that the crew is desperately trying to save. Value means nothing.
About this time, if you go to a cocktail party, you will meet that irritating figure Faunty Smugg, who smoothly assures you that he hasn't owned a share for six months. A social broker you sometimes encounter, Pete Pusher, claims that he has gone short in all his accounts.
Eventually, though, a point is reached where everybody who can be scared into selling has sold. The professionals, who have been hovering overhead, so to speak, and the institutions, who always have a few billion dollars to spend, accelerate their buying, and finally an equilibrium is reached between the buyers and the sellers. Usually, the final battle occurs in a few days of extremely high volume - a selling climax. The ordinary investor, who has gone over the waterfall, is groggy, bruised, and sick, his ears ringing. He does not want to hear about stocks, never again. The few professionals and institutions have the field pretty much to themselves. What they buy goes up, since there are almost no sellers left. Then, some weeks later, the old lows are quietly tested on modest volume, but it doesn't attract much attention. Experienced investors are confident that that better weather lies ahead.
It's odd, but major bottoms are almost never a spike. They have two roots, like a tooth.
Next installment
Surge: "It's Too Early to Buy. . ."
Source unknown anyone some ideas
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- CommentAuthorbigspender
- CommentTimeJan 9th 2007
Any investor with money to spare is best advised to keep an eye on the companies he has invested in. There are signs that point toward the bankruptcies before the market crashes. If you have absolute faith in your investments then you should avoid the panic that pushes others toward selling because as sure as eggs is eggs it will pick up again, as in the article above.
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If you look at the history of the Iseq though, the market tends to collapse at semi-regular intervals - one or two good years followed by a market fall from the seventies until the nineties. Since then we've had several good years followed by a few negative ones. It seems to be becoming more unpredictable, but the cyclical nature remains intact and natural corrections do occur.
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I like the analogy of the sinking ship on Black Monday's post, and it's very true as well. People clamour to offload their stock before weighing up the pros and the cons as a result of mass panic. It is that panic that sinks stock.
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Investors behave like lemmings?
'Investors appear to have been caught up in a whirlwind of speculation and gambling,' commented Professor Johnnie Johnson, 'their appetite for gain led to an explosion of excitement, with rational judgement being one of the first victims.'
From The University of Southampton www.soton.ac.uk/mediacentre/news/2005/may/05_86.shtml -
Lemming
Investopedia Says: In the animal kingdom, a lemming is a rodent known for periodic mass migrations that occasionally end in drowning. Lemming populations go through rapid growths and subsequent crashes.
"The act of following the crowd into an investment that will inevitably head for disaster." -
Amazing how one definition can capture the whole ideology of a culture really isn't it?! The lemming is like the market cycle too - rapid growths and subsequent crashes. The majority of investors who have little knowledge in the field follow a trend so identifying them as lemmings in somewhat apt.
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- CommentAuthorpintofplain
- CommentTimeJan 12th 2007
Investors may take offence to that but its completely true! That factor contributes to the idea of a market cycle. People have distinctly set patterns of buying and selling that makes it so. All it takes is a blip for people to offload and a major investment for people to see and buy. -
- CommentAuthorbigspender
- CommentTimeJan 12th 2007
Market cycles are dependent on a number of factors, the need for correction being the main one. The market has to right itself because failure to do so would eventually result in an unprecedented crash that would take years to recover from, not disimilar from Wall Street in 1929. I'd much rather have a natural market cycle than have to face that. -
- CommentAuthorpintofplain
- CommentTimeJan 13th 2007
You only have to look at the market cycle there really, and that was an all time low. The economic reforms had to be put in place to introduce economic recovery and literally forced the market cycle because it appeared to be incapable of recovering on its own.
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The world has learnt from it though. The market cycle is important for economic growth and so the correct stops have been put in place to prevent a repeat of that. That is completely necessary because of the impact other markets have on our stock. The Iseq is an integral part of the economy and so leaving it completely vulnerable would risk ruination.
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Regardless of history, where there is a stock market there will always be a market cycle. It is as natural as breathing, which is why I am so skeptical about this year. What goes up must come down and all that!
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What goes up must come down, but there is a very real question of when. There is also the question of how - will it drop dramatically or decline steadily? No two market cycles are ever identical, which is why it appears to be somewhat of a rollercoaster from time to time.
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- CommentAuthorBlack Monday
- CommentTimeJan 13th 2007
Next installment in this interesting summary of the Market Cycle....
Surge: "It's Too Early to Buy. . ."
We are at the beginning of the dynamic phase of the bull Market, the optimum buying "window' will last for only a few months, But it is prudent to hold off most of your buying until the market has clearly turned, and is full and by on the new course. You can usually recognize when the upward trend has been solidly established. The professional investor does not mind paying 20 percent more for a stock that has been cut by two-thirds, to be quite certain that it is not going to go down a lot more. The government shocked by the decline, and as always beset by clamour to "do something" pumps liquidity into the economy, which of course does not take effect instantly. The Wall Street pundits declare that this time the stimulus isn't working. "It's like pushing
a rope," you hear. In fact, however, the government will get what it wants, and as soon as its intentions are fully clear, it's time to act. The months go by and prices rise. The misery of the recent past is quickly forgotten, like a thorn extracted from your foot. A few mutual funds will have been started during the bottom area, and articles in the financial press begin pointing out that the Hercules Fund has grown 75 percent in six months. One starts hearing extraordinary stories of people who bought calls on Intertronics warrants and thus transformed $100,000 into $800,000. The institutional issues, such as
the Dow stocks, make important moves. Volume, however, usually continues low. The consensus of the advisory services remains cautious. The banks recommend staying in short-term, fixed-income instruments "until the situation has clarified." The brokers, who have to push what they can actually sell, suggest bonds, preferreds, and the like. That, however, is what I call the "yield trap." Most of the time, if bonds are going to do well, stocks will do much better. Indeed, stocks well bought at such a time will double or triple in the next few years.
Next installment
The Surge Continues: "Prices Seem High. . . It's Too Late to Buy"
Source unknown anyone some ideas????
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What stage are we at now? The prices seem to be rising and rising all the time. Will it end?
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- CommentAuthorbigspender
- CommentTimeJan 23rd 2007
The price rise will end... it's the normal cycle of events. Periods of continuous steps above the most recent high. Could continue for some time. Would not like to hold a large portin in the market. The risk of correction increases but also some good money to be made if your willing to take the risk. -
- CommentAuthorBlack Monday
- CommentTimeJan 23rd 2007 edited
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