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created Feb 2021
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Comments (41)
Investors invest in stocks hoping to get profitable returns on their investments. It's a similar motive as taking a new job hoping to make more money or putting money in a bank that pays more interest. Hundreds of millions of people, organizations, pension and retirement funds and companies own stocks in US companies.
What happens if the DOW index falls to 8,000? Some people will lose a lot of money and others will make a lot of money. That's what always happens when the market falls. In the past history of the stock market, those people who held onto their stocks through such declines were generally rewarded by their stocks again rising even higher than they were before. You should not invest in stocks if you cannot hold on through the dips. Stocks have always provided excellent returns for those who held them for a relatively long term.
The general rule in investing is that more risk comes with POTENTIALLY more return. Of course since there is more risk that means that more return is not GUARANTEED.
With bank account and bond rates near zero you can make a case that in the current economic and government fiscal environment it is more risky NOT to have some stocks in your portfolio than to have them.
Companies sell stock to raise money to use in their businesses. After they sell them, the stocks continue trading on the "secondary market" where one investor can sell them to another investor. When you buy stocks in the secondary market, the original company doesn't get any of the money.
The stock market and individual stocks are in general a forward looking indicator. In general the price of a stock is driven by the future OUTLOOK for the underlying company to make profits. The more profitable the outlook for tomorrow, the higher the stock price today.
But sometimes, such as is the case with the company GameStop, which is probably the news that provoked your question, the price is not driven by the potential for future profits, but by artificial factors. When that happens it is more like gambling than investing. The people who played the game of buying and selling that stock were gambling and the price was not based on any fundamentally sound measures of the company's profit potential. I don't advise getting involved with that kind of stock unless you are a sophisticated investor who understands the risks and mechanisms of the game.
Stick to your day job. About 80% of what you wrote is wrong.
A dollar is probably all you have to put in it anyway!
Completely false.
Here is a chart of the DOW from 1964-1983. The green indicates that the DOW was up that year, the red indicates it was down. The top line is a 40% increase. There were 13 years when the DOW was up and only 7 when it was down for the year in that period including 1975 when it was up almost 40% in a single year.
Going to work is speculation that you will receive a paycheck.
But of course there are gamblers who are not interested in investment, but in profit that can be made from fluctuations. Derivatives are intended to provide a means of limiting costs over time, as insurance for example against a sudden rise or fall in a commodity price when the business is committed to buying or selling that commodity. Derivatives are normally not investments at all but a form of risk management.
Some stock simply defy rational explanation. Look at the earnings to share ratio for TESLA for example. Look at the Gamestop farce just recently. Half the punters are grinning broadly and half are serious losers. Yet if you take a serious intelligent conservative investor's view of the market, combining income and growth, you should be able to at least match the market.
Working in the investment/stock market industry as I did for almost 30 years, I was always constrained by compliance requirements, and so only my superannuation went into the market, apart from an occasional medical technology IPO. Still the ASX took a 40% hit in 2007-08 and with it my Super fell 35%, but except for shrugging, what can you do? Take it on the chin. The ASX XJO by the way is currently at 6880, slightly lower than its peak in 2007!
and that's from an online bank. More commonly it's 1% or less.
The inflation rate for 2020 was 2.7% (thanks to Trump's trade wars). Thus, keeping money in a bank in the USA loses you money, especially if you compare it to the stock market.
If the market indices were to drop by say 40%, on average, I'd jump back in from cash right away. And after a recovery of 10 to 20 % to previous overbought levels, I'd run away with my tail tucked between my legs. As I've done before. So as to respect my gratitude and fears, rather than the greed in all of us.
Even though with my cheap guy-self sufficient lifestyle, I really think any more gains these days, with near negative interest rates and low inflation, are truly superfluous. You heard it here first.
If the market drops 40% quickly,theres a very grave, even fatal reason for it. No one has a crystal ball.
This is a controversial topic. The popular lore says that gold is inversely correlated to the stock markets which is a fancy way of saying that when the stocks are up gold is down and visa versa. But the best studies on this issue show that there is almost no correlation at all between stocks and gold over long periods. So that's why you observe periods like the current one when both are up at the same time.
Depends on what you mean by "controlled."
If you mean is it regulated, then the answer is yes. In all countries that have stock markets they are regulated by their respective governments.
If you mean is there some master puppeteer in the sky pulling the strings that control the prices of individual stocks the answer is no. Prices are largely determined by the principle of supply and demand based on millions of individual investors who buy or sell stocks.
So?
Where else are you going to put your money if that happens? Socialist Venezuelan bolívars? with a 500,000% inflation rate where you need to double your money every 4 seconds just to keep up with it?
It doesn't matter how far down the American stock indices fall, the only thing that matters is how it compares with other investments. It's only the RELATIVE performance that matters. And as all of the history of the US stock markets has demonstrated, there is no better investment in the long run that the US stock markets. It doesn't matter if they are up or down. They have always been the best place to invest for the long term.
The only investment that is worse than investing in the US stock market is all the other ones.
I will say though....you want to talk about perfect timing with the internet tax that most states have enacted.
...anyway
I will just say again, I don't think this is the stock market I used to somewhat know about 8 or so years ago. I appreciate your information. Thank you.
With all the unemployment and all...the plundering might be coming to an end.
That gives a bit of an understanding...about the now non-rational operation of the market. I almost understand from what you are saying that a lot of "deregulation" might be responsible for why things are why they are.
Like mentioned earlier, my broker was talking when the market was at 16K it was going to burst.
I actually heard that the banks actually have more power now than the government when it comes to national financial matters. ...due to deregulation.
The world has trillions of dollars in investable assets. That includes both billionaires and people with $59.82 in their bank accounts. When you add up hundreds of millions of the "little guys" it adds up to a lot of money.
The median net worth of American households is about $122,000. A portion of that is liquid net worth. When you have liquid assets, you have to store them somewhere. And it's an axiom of economics that people will choose to store their money where they perceive it will have the best return for the amount of risk they are willing to take.
Right now the interest rates are at al all time historical low. You earn virtually nothing on your money if you have it in a bank. On the other hand, if you have it in a relatively safe dividend paying stock, you can earn as much as a 7% dividend plus the chance of appreciation.
Millions of people have decided to take the risk for the extra reward, or they can't live on the low interest they earn in other investments so they turn to dividend paying stocks instead. So a gusher of money has moved out of fixed interest investments such as bank accounts and bonds, and into the stock market. That creates more demand for stocks and more demand relative to supply drives up stock prices.
This is a natural process, not a "manipulated" market.
Now, you can argue that the interest rates are low due to economic manipulation by the government. That's a legitimate topic. But that doesn't challenge the legitimacy of rising stock prices.
No one is saying that there isn't a chance that stocks will have a major correction at some point. Stock markets go up and down. That's what they do. It can happen at any time. The point is that they are not controlled by some mysterious genie behind a curtain pulling levers. That's a myth promoted by the enemies of capitalism. There are market based reasons why stocks go up and down and the reason they are up now is that they are the only game in town for those with investable assets.
There is an old joke that goes like this:
"Will stocks go up or down?"
"Yes, but not right away."
@Sir_T be aware however, that your graph is logarithmic scale!!! not linear in the least! The eyes are deceived
Yes. If it was to proper scale you wouldn't be able to fit it on an screen and you would be scrolling up for minutes
But my point was to show that the US stock market has actually been stable for long periods of time. Anything on a line will be the same value. You are correct that the rise in value from that time however has been enormous, and I honestly don't think the true economy of the USA has grown to that scale.