Well, the stock market closed today after dropping more than 1,000 points. To many people who are day traders and other inexperienced investors, this is not good. This means a substantial loss for some and an opportunity for others. Personally, I am reading The Intelligent Investor by Benjamin Graham, and paying close attention to the investing habits of investing gurus like Warren Buffet, George Soros, Charlie Munger, etc. In so doing, I am learning to adapt to such declines without allowing my emotions to get the better of me. I buy and hold stock because as I continue to increase my knowledge about investing, I realize that the real benefit for me is in long-term thinking and investing.
I have learned that it is not wise to go with the flow and mindset of others. The best approach is to gain a better understanding of my personality and invest based upon that knowledge that have about myself. So to continue my education, I have subscribed to sites like Investopedia ,Bloomberg.com and CNBC to receive daily updates and articles that provide me with insight into what is occurring in the global markets. These sites provide the average daily person with courses and training to enhance their ability to participate wisely in making financial decisions and investments.
Please understand this…I am in no way an expert investor. I have much to learn. However, I have been paying close attention to the recent events occurring in the global markets. Many of the investors in the global exchanges have reacted with concern as a result of the volatile sessions in U.S. markets which began last week in response to the threat of an increase in interest rates by the federal government. The domino effect appeared to end on Tuesday of last week once it was announced that there would be no increase in the interest rates on Wall Street. However, the Federal Reserve Bank issued a warning that inflation could be around the corner, and therefore, they would continue to monitor the markets closely.
What is the source of this volatile period? Although a report of strong jobless claims would appear to be good news on the surface, in reality, once this report was released, worries over inflation and an increase in bond yields began to rise. Once this occurred, traders began a mass selloff campaign which led to plummeting almost 1,600 points on Monday. However, on Tuesday, there was a market swing of 1,167.5 points, only to close lower again on Wednesday. In addition to this, Jack Ablin stated, “Market valuations are expensive and need to correct.” In other words, stocks prices are inflated resulting from strong earnings and economic data reported during the Q4 session. James Bullard of the Federal Reserve Bank (St. Louis) said this swing in market prices are the result of “elevated valuations of technology stocks and the absence of any recent drops.” When this occurs, the market goes through a correction period wherein the market makes the necessary adjustments for an overvaluation.
What does this mean for the average investor? Depending on your personality and investment goals, make your decisions wisely after becoming better informed. It would have been easier for me to follow the trends of investors who began to pullback once stock prices began to plummet. However, making investments is an individual journey that requires that each person do what is in their best interest in the long run. After researching what was happening in the market, I learned that market corrections are “fairly frequent events”. With this understanding in mind, there lies no reason for me to follow the path of others and deviate from my long-term goals. It just means that I am one step closer to attaining my goals than I was yesterday.
Sean Mungin, author of “The Thorn In The Flesh”