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.”
