Disclaimer: This commentary is based on nothing other than my observations from following the stock market for over 50 years. Even as a teenager I owned some stocks and was fascinated with the market.
Stocks go down because people (investors/advisors/money managers) are worried. There are always plenty of things to worry about, as we all know. Every day there’s a daily vague media excuse for why the stock market went down. It usually concerns something that might happen, rather than something that actually did happen. If the stock market’s decline is prolonged, stocks eventually become cheap.
Stocks go up because stock prices are considered to be a deal. The stock market is just a composite of stocks, and stocks are ownership in individual companies. Once investors think a company’s price is a great deal, they start buying it and the price goes up. Once prices of lots of companies start going up, people worry less and start buying more.
I’m speaking with an old-school naiveté based on the assumption that hedge funds and massive short-term computer trading programs don’t have a disproportional impact on the market direction. But the folks that manage these must worry and look for deals, too.
I wouldn’t be surprised if the market continues on this path for a while. But, at some point in the future, often when most investors are totally frustrated and looking for “safety,” others notice stock bargains and the stock market will start going up again, often rapidly and quite unexpectedly. Hopefully, this will be sooner rather than later.As legendary investor Warren Buffett said, “Be fearful when others are greedy and greedy only when others are fearful.”