Most days, the market doesn’t do much. Sometimes there is almost no price movement, but lots and lots of volume. Those days have long term economic consequences, but no one outside of the businesses involved actually pay any attention. Here lately, there have been much larger price moves, on very small volumes, which makes it easy to report boom and bust scenarios.
There are three or four television networks with all day coverage of the markets in the US. Their business is not providing reasoned, much less accurate analysis of the way money is moving, or the likely consequences of that movement. Their business is selling advertising. The next time you see a report on a company, or market segment, try to learn one fact about how the business is actually functioning, how its products or services are being created, and delivered. It is almost impossible, even in the detailed analysis provided to brokerage houses by the actual businesses themselves.
Modern markets are 99.9% public perception. If everyone thinks stocks are going to go down, they go down. If everyone thinks the banks are going to go broke, they go broke. And when everyone decides that all those cheap companies are going to come back up, hey, what a surprise, they come back up.
If the Greek people decide to stiff the folks who bought their bonds, those folks will start selling those bonds like they were on fire. All the analysts will declare Greek Debt to be worthless, and the rates the Greek government has to pay to borrow money will go up. When it gets high enough to be worth the increased risk, all institutions and funds with cash sitting on the sidelines will take the risk. The pool of money needs to be put somewhere to earn money. The market rides up in bubbles and no one asks “Where did all this money come from?” But when it comes down like the breakers at Maui, everyone wonders “where did all that money go?”
In the fifteenth century, some very clever people came up with the concept of corporations created by pooling idle wealth. That idle wealth drove opportunities, and endeavors that created goods and services, and provide huge amounts of benefit, drew enormous profits, creating the Renaissance. It kept going for hundreds of years. The phenomenon really did create wealth. Starting in the middle of last century, investment management became an industry for its own sake. There was no encouragement of risk capitalization, just opportunities to take percentages from every type of economic activity. What we have now is deliberate bubble and bust cycles that benefit only the financial industry itself.
Buy low. Don’t sell. If you chose to buy a company because it makes, or does something useful, and it does that particularly well, why would you sell it unless it stopped doing it well?
Tris
