There are investors (yes, I know some of the poor souls) who start the day by reading stock market results in their Wall Street Journal (print or online and sometimes both). Then, at the end of the day they look for more stock market results on television.
They must be masochists.
Yes, perhaps an exaggeration, but why follow day-to-day news of the stock market’s inevitable day-by-day roller coaster-like ups and downs? It goes like this:
Plunge. Rebound. Crash. Rally. Plunge again (even lower this time).
Call it stomach-wrenching. Or confidence testing if you like a loftier term. But it’s another sign of the inevitable volatility of the market. This is the kind of news that puts followers on edge.
And who needs it?
If we know nothing else about the stock market, it has a sometime erratic, haywire personality. You don’t need to be a historian to remember Black Monday (take your pick of dates).
Stock prices going up and down? Is that abnormal? No. Supply and demand does it regularly. It is as natural as your desire for a new car or your family’s desire for more living space in your home.
Wonder why some investors ignore the daily stock exchange results? Sure you do.
Everyone from traders to money manager and even amateurs such as you has their own theories. Causes are not limited to but include:
—Sheer panic. Fear (often unjustified…sort of like nervous flyers’ fears of a plane crash when their drive to the airport is far more hazardous to their health).
—Fear of losses is a self-fulfilling prophecy that makes investors more defensive, which sparks more selling.
—Speculators reacting to seemingly bad news. See more below.
—Forced selling by over-leveraged funds.
—An often publicized lack of political leadership staring with the stalled US Congress and the lack of direction from the executive branch starting with President Obama. Then, there’s the debt ceiling (everyone at fault), etc.
—Many big investors are not in position for rapid downward reversals in stocks. Many of these using borrowed money are forced to sell assets to raise money to meet margin calls. All in all, a bad situation.
—Sales and profits of a company have dropped.
—A company may be buying its own shares, which tends to raise the price of remaining ones.
—The announcement of new products or services.
—Company earnings are more than expected.
—Company earnings are dramatically less than expected.
—Acquisition rumors, negative and positive (but mostly negative).
—Even the news that a new and highly successful or long-time failed CEO is now on board impacts highs and lows.
—There’s a strike, a natural disaster, negative rumors about a company or a natural disaster.
—Other stocks in a related industry are in a decline.
—Any hint of recession news.
—New government rules (almost always new restrictions…or bad news).
—Oops, another multi-million lawsuit has been filed against the company.
—Computer trades hardly help. More than two-thirds are now represented there. Super-fast computers making short-term math decisions raise confusion.
Investors have to get used to it all, however.
And what they do is simple: don’t read the daily ups and downs. The smartest advice is to pay attention instead to your long-term investments. In the end, they are the only ones that count. If you don’t believe it, keep reading the daily results.
This article was first published on http://moneyprime.com.