npande
Every day for the last few weeks I hear media reports trying to guess the reason for a particular plunge in the markets, or come up with yet another expalantion of why a rally didn't happen. Headlines like "Markets plunge on bailout 'No' vote", or "Bailout passage fails to calm market" or "investors shrug off rate cuts", or "investors worried that bailout/rate cut/government action/_____<fill in the blank> may not be enough". I sit here before my computer and try to picture Mr Investor going through this weird logical exercise and then picking up the phone and telling his broker to sell. And I'm not convinced. Frankly, I'd rather the media just report what the market did and try not to act like they know why.
In my humble opinion, here's how it's playing out:
The avergae individual investor is a coward. He runs at the first sign of trouble, even at a loss. Now given the situation today, even those with a strong hearts have started experiencing chest pains and pulling out. Over $100B has fled the mutual funds in the last couple of weeks. Even large investors are hording their cash. The worse the news gets, the worse the panic selling.
In order for a rally to take place, there has to be buyers. Who is going to buy if most investors are booking their lossess and stashing whatever they have left? That's the cause of this stock market meltdown, and not the warped logic that the media would have us believe. I think this is going to continue until only the rational minority of investors are left in the market. This may happen at Dow 8000 or perhaps at Dow 6000 for all we know. But once the market has stabilized a bit, some investors, particularly with large amounts of cash, will slowly start coming back. Rich folks hate to lose money more than the poor do. The recovery will take months and even years, but it will happen. This theory is not too sophisticated, but at least it is finite and understandable, and I'm sticking to it!
In my humble opinion, here's how it's playing out:
The avergae individual investor is a coward. He runs at the first sign of trouble, even at a loss. Now given the situation today, even those with a strong hearts have started experiencing chest pains and pulling out. Over $100B has fled the mutual funds in the last couple of weeks. Even large investors are hording their cash. The worse the news gets, the worse the panic selling.
In order for a rally to take place, there has to be buyers. Who is going to buy if most investors are booking their lossess and stashing whatever they have left? That's the cause of this stock market meltdown, and not the warped logic that the media would have us believe. I think this is going to continue until only the rational minority of investors are left in the market. This may happen at Dow 8000 or perhaps at Dow 6000 for all we know. But once the market has stabilized a bit, some investors, particularly with large amounts of cash, will slowly start coming back. Rich folks hate to lose money more than the poor do. The recovery will take months and even years, but it will happen. This theory is not too sophisticated, but at least it is finite and understandable, and I'm sticking to it!