Shouldn't The Stock Market Go Down?

[sp1]

"There are times when markets behave rational,"

For example the data may show weakening economy and the stock market will sell of efficiently pricing in the reduced earning visibility.

"There are times when markets behave irrational."

Like recent rise in crude inventories but the price did not sell off, and like the rising inability to afford housing for FTB but increasing expectation for capital returns of the home owners above the chain (cf housing sentiment early 2004). Or any other times market bulls sight "this time it’s different and herald the new economy"

"Look at the irrational rise in sterling upon wide conviction of a rate cut.....this is pure irrationality"

Higher interest rates are one of the mechanisms for attracting sterling investment leading to GBP appreciation.....currently sterling has rallied upon the media brain washing every one that the BoE MUST reduced Interest Rates.....this against the rising rates in the US that will increase money flow out of GBP.

"But that’s fine, because all is fair in WAR and markets are a war for profits, the propaganda financial news media is tooled up and shooting salvos to take your cash and move it higher up the pyramid...."

Harsh statistical realities are that the financial news media is a very poor judge of when to get in on a trend and when to get off it.

Markets are not for mutual benefit, they are an income and business tool for capitalists. They need the liquidity that small players and though isas, savings pensions and insurance provide.

"If you have got paper profits on your stocks. Please make sure you don’t let them become paper losses"

Easily understood request. I don’t want people to loose money.

"The trick is one of confidence."

How can people time after time generation after generation go through losses giving their (often hard earned) money to the small number of market participants who make consistent profits and execute their business plan.

If markets were efficient and everyone thought the same and equal quality of analytical probabilities were understood by all participants then no one could sell anything for a big profit. If Baltimore Technologies stock really were "worth" £32 per share to every one in 2000 then how come the owners of that stock were off loading by the barrel load??? It wasn’t worth it to the sellers and if what they knew (form greater business experience or sophisticated advice) was to be thought by all market participants then no one would have bought and the price would fall till the sellers would buy. But then they would not sell. An illiquid market would result.

In every market the seller will only do it because he is motivated to and the buyers have to have confidence that the thing is worth the ask.

“look into what the Index ACTUALLY measures and you'll find at the core no rhyme or reason to the weighting of its components and thus to its true value...."

Every month as market capitalisations change with price fluctuations some stocks leave the index and some stocks are included....SO that the index does not undergo sharp price jumps upon the change (that would present a very low risk monthly income to a savvy derivative trader) the index weightings are adjusted so the price of the index moves smoothly.

But when this is looked into in depth (not by me but I trust those who communicate this) some thing interesting is found.

If you calculate monitor the price changes of all the FTSE100 stocks over a week or a day or even hours what you should find is the index moves in EXACT proportion to the changing prices of the constituent members but this is not the case....Why....I don’t know.

But the current empirical observation leaves the possibility for unaccountable weightings adjustments that can misrepresent changing market sentiment and fundamentals!

Just like how the property VIs will keep spouting stagnation at the peak and during the early price falls. And then when markets are looking good they will spout over bearish headlines and expectations trying to extend bearish sentiment at a time when those with independent analysis will start seeing improving market conditions.

Many people on the site will give testimony to the above.....And the reality is that it is normal behaviour across all free markets.

"Financial planner is on the money. I’m not saying there’s not money to be had but come on, haven’t you notices all the enticements and offers that big consumer corps have been giving us through the supermarkets but it not sustainable is it....

there will always be selected winners and losers but you got to be selective why trust any one with your cash....I know no time, well studies show investment professionals get returns worse than the market, on average.... so how you going to find some one above average....hmmm.

"

If you really want expansion of the rest, tell me by PM and I’m happy to do so later. Otherwise this has got long enough

Take care all

[Van]

Ah.. the stock market. Always a good talking point. I actually think that people have begun to sit up and take note of the fact that we are at a 3 year peak, and this is what is extending the current bull run past 5,300, as more casual people begin to be drawn back towards the stock market.

Everyone old enough seems to remember the 1987 crash, but really, it wasn't that big a deal. Within a year the market had recovered, and it was actually a fantastic opportunity to buy cheap shares. Peter Lynch, who ran the Fidelity Magellan fund (the largest fund in the world) from 1979-1990, and who returned an astonishing 29%pa during his tenure, has written that the 1987 crash wasn't even amongst the top 3 most significant events to happen to the stock market in the '80s.

Some time in the next three weeks, or 3 months, or 3 years, the market will drop suddenly. But if you have faith in human advancement, economic growth and capitalism, then you should just ignore the current price, and keep buying - in the knowledge that you are getting a bargain. Stocks are the ultimate play on investment if you believe that as a race, humans want to go forward, not back.

[AmateurEconomist]

Some time in the next three weeks, or 3 months, or 3 years, the market will drop suddenly.

This is my sentiment exactly! I cannot see how the stock market avoids a slump if house prices crash. So unemployment goes up in response to recession, and IR goes down to boost demand. IR going up, as some of the bulls are preaching, does not seem likely at all.

[dogbox]

Ah.. the stock market. Always a good talking point. I actually think that people have begun to sit up and take note of the fact that we are at a 3 year peak, and this is what is extending the current bull run past 5,300, as more casual people begin to be drawn back towards the stock market.

Everyone old enough seems to remember the 1987 crash, but really, it wasn't that big a deal. Within a year the market had recovered, and it was actually a fantastic opportunity to buy cheap shares. Peter Lynch, who ran the Fidelity Magellan fund (the largest fund in the world) from 1979-1990, and who returned an astonishing 29%pa during his tenure, has written that the 1987 crash wasn't even amongst the top 3 most significant events to happen to the stock market in the '80s.

Some time in the next three weeks, or 3 months, or 3 years, the market will drop suddenly. But if you have faith in human advancement, economic growth and capitalism, then you should just ignore the current price, and keep buying - in the knowledge that you are getting a bargain. Stocks are the ultimate play on investment if you believe that as a race, humans want to go forward, not back.

<{POST_SNAPBACK}>

Great post on the SM Van.

There are to many neg - heads on this forum who just refuse to accept any investment is worthwhile other than cash. A bit of cash is ok but without other more 'risky' elements you will never make 'real money' for without having to work.

Framlington Health Fund Unit Trusts commencing in 1981 metamorphed £50.00 per month into £177000 by 1999! What would a Ladybird savings account with the Budleigh Salterton Building Society have returned?

Remember, the same Megabears told me not to go into B2L a few years back, I ignored them thankfully.

SHALL WE DO A POLL ON WHO ON HERE IS A PERMABEAR?

[urban_hymn]

Great post on the SM Van.

There are to many neg - heads on this forum who just refuse to accept any

<{POST_SNAPBACK}>

Neg-heads? I've heard that expression before somewhere!

[Auntie]

Amateur that I am, I got nervous at the start of May and sold my shares.

How p****d off am I?

Bah!

When it crashes, I will be a bit braver, and stay for a while longer.

[Guest muttley]

There's always a bull market somewhere.

I recently stuck some money into a German Growth Unit Trust.If you don't like the UK SM then it's easy to invest somewhere else these days.

[sp1]

I'm no perma bear...

Im bullish on USD, EDR.l DFD.l ACG.l ONXX DLTR BEC COCO

But i do think the wider market is over priced and being distributed out.

Timing is everything with investments....IMHview

Time will tell.

[Phaedrus]

I've been putting money into the stock market every year for the past 10 years, and will continue to do so for the next 20 years. I want a low index at the moment, so I can buy the shares cheaply. I only want it high when I come to sell. It's simple really. (Warren Buffet taught me that )

[Unexpected]

Amateur that I am,  I got nervous at the start of May and sold my shares.

How p****d off am I?

Bah!

When it crashes, I will be a bit braver, and stay for a while longer.

<{POST_SNAPBACK}>

I did the same as you about the same time, but fortunately realised my mistake and bought back in. Since then I got really lucky on BP, FXC, BFC, and BHP. These have all gone up between 10 - 20% in the past couple of months. These alone would fully explain the recent rise in the FTSE100 (except BFC & FXC of course).

This is more proof to me that HPC.co.uk is more than just a place for negheads to hang out as I picked up these tips from this very site.

Edited August 3, 2005 by Sine270

[Guest Charlie The Tramp]

SHALL WE DO A POLL ON WHO ON HERE IS A PERMABEAR?

Don`t forget to include Realist in the poll.

I know some real Permabears, they used to wear red braces in the early 80s, got converted when they stopped making their fortunes by a click of a mouse, or a quick telephone call. Oh how they were led like lambs to the slaughter by the Pros.

[verolution]

next bull market looks like Japan or Germany IMHO

[Killer Bunny]

FP, there is no such thing as a risk free decent wealth adding investment.

At some point in your life you got be at the party or you will be forever a wage slave.

I think you will regret missing out on this lttle party.

<{POST_SNAPBACK}>

I'm not suggesting one should never invest in shares. Of course I'm not.

Similarly one should be in property at times - but that time may not be now.

History shows that when the retail customer buys its about time to get out.

The FTSE has risen 50+ % in just over 2 years with some 8% inflation.

Tough one.

[Guest Charlie The Tramp]

It's simple really. (Warren Buffet taught me that  )

<{POST_SNAPBACK}>

Not the same Warren Buffett who when ask a little while back what he considered to be the best future investment, at which he replied, I can think of three.

1. Cash.

2. Cash.

3. Cash.

I think he now holds $42 billion of the stuff.

[Van]

As private investors, you or I are afforded 10 times the opportunities that are open to Warren Buffett's Berkshire Hathaway, who, unless they buy something with a market cap of at least $1bn won't make a dent in their bottom line. There are plenty of great smallcap companies out there that have excellent prospects. That's the thing with stocks - all it takes it a good idea about how to make money. For instance, I am heavily invested in the online gambling at the moment, a sector that has exploded in the last year, and which I think is going to be a goldmine for investors over the coming years.

I don't care if the market has risen 50% since 2002 - the market jumped 50% in a single year back in 1982, and everyone worried about how it was going to be sustainable - well, anyone who took their profits and cashed in at the end of that year would have felt pretty stupid 10 or 15 years later, wouldn't they? As long as companies make money and increase their earnings, I'm happy to have a large chunk of my wealth in stocks. You can't predict the stock market and it is foolish to try to do so in my very humble opinion, but you can choose to believe that companies will continue to drive our economies forward, and that the listed companies that make up the stock market will generate a lot of this future prosperity.

I tipped the FTSE to reach 5,400 this year which looks a good call at this stage. This market is climbing that "wall of worry". It's early days yet, but I remain bullish for next year. More money will be withdrawn from property and put into the stock market - they is always money sloshing around that needs a home. Perhaps one of the reasons the FTSE has risen so much this year compared to the SPX is because our property bubble appears to have peaked, and people are again looking at equities, whereas in the US their property bubble is still going. We've still got a bit of catching up to do with the US markets when you superimpose the charts over the last 5 years.

FTSE to reack 6,200 in 2006, a modest 16% gain from where we are today?

Edited August 3, 2005 by Van

[Van]

He (Buffett) doesn't like resource stocks... he doesnt like Put options

I'll stick with my poison, and leave him to his

<{POST_SNAPBACK}>

Buffett, as keen investors on this board will know, is a very different beast to yourself DrBubb. Whereas you are a sector/cyclical player, Buffett is a value/contrarian player. It's impossible to say which is the "right" approach - there is no right and wrong, because ultimately investing is a very personal thing and the degree of risk and patience involved for one person may be totally unsuitable for another. That's what I love above investing in the stock market - we each develop our investment practices to suit our own personalities and financial goals.

[cock-eyed octopus]

There's been a massive growth in money supply over the last few years due to running artificially low interest rates.

<{POST_SNAPBACK}>

How do you determine the correct interest rate?

Just asking.

[MarkG]

How do you determine the correct interest rate?

Get rid of the central bank and let the market set rates.

[Benny Jezereth]

Here's one for the bears, been reading these guys on and off for a couple of years now, always a good bearish view, this one touches on housing market propping up the economy, pretty much sums up theme on this thread and hpc forum.

http://www.comstockfunds.com/index.cfm?act...&menugroup=Home

enjoy, a new well informed and honest bearish installment every thursday

[Guest Charlie The Tramp]

Get rid of the central bank and let the market set rates.

<{POST_SNAPBACK}>

Out of interest how would that work.

[cock-eyed octopus]

Get rid of the central bank and let the market set rates.

<{POST_SNAPBACK}>

Why would rates then rise?

[Unexpected]

As private investors, you or I are afforded 10 times the opportunities that are open to Warren Buffett's Berkshire Hathaway, who, unless they buy something with a market cap of at least $1bn won't make a dent in their bottom line. There are plenty of great smallcap companies out there that have excellent prospects. That's the thing with stocks - all it takes it a good idea about how to make money. For instance, I am heavily invested in the online gambling at the moment, a sector that has exploded in the last year, and which I think is going to be a goldmine for investors over the coming years.

I don't care if the market has risen 50% since 2002 - the market jumped 50% in a single year back in 1982, and everyone worried about how it was going to be sustainable - well, anyone who took their profits and cashed in at the end of that year would have felt pretty stupid 10 or 15 years later, wouldn't they? As long as companies make money and increase their earnings, I'm happy to have a large chunk of my wealth in stocks. You can't predict the stock market and it is foolish to try to do so in my very humble opinion, but you can choose to believe that companies will continue to drive our economies forward, and that the listed companies that make up the stock market will generate a lot of this future prosperity.

I tipped the FTSE to reach 5,400 this year which looks a good call at this stage. This market is climbing that "wall of worry". It's early days yet, but I remain bullish for next year. More money will be withdrawn from property and put into the stock market - they is always money sloshing around that needs a home. Perhaps one of the reasons the FTSE has risen so much this year compared to the SPX is because our property bubble appears to have peaked, and people are again looking at equities, whereas in the US their property bubble is still going. We've still got a bit of catching up to do with the US markets when you superimpose the charts over the last 5 years.

FTSE to reack 6,200 in 2006, a modest 16% gain from where we are today?

<{POST_SNAPBACK}>

Hi Van,

I would also like to invest in Online Gambling as I think the growth potential is excellent. Hey, even I started to do it.

I wondered if you would care to suggest some stocks for online gambling companies as I havn't found any yet.

Thanks

sine270

[Van]

Don't know about others, but I find this thread brilliant (off topic notwithstanding).

I actually agree with a lot of what dogbox says. You have to have *some* degree of exposure to the stockmarket or other riskier investment if you ever want to make serious money.

Money in the bank, earning 3% real interest is never going to make you rich - life is just too short for compounding at 3% to have any real effect. But put a quarter or half of your savings into the stockmarket each year and you might double real return from 3% to 6%, which will make a hell of a difference over 40 year's worth of compounding.

I know plenty of people who spend more than they earn. I know a few people who do manage to save - but they stick what they can in the savings account which might buy them a nice car after 20 years. I know very few people amongst my friends who I consider "money smart" and know how to make their money work for them.

And the poster who said "I want equities to be cheap when I buy... and only expensive when I eventually get around to selling." - I salute you!

[Guest Charlie The Tramp]

How do you determine the correct interest rate?

Just asking.

<{POST_SNAPBACK}>

Well it is said the MPC look at 5.25% to 5.50% as the neutral rate.

The average rate the past forty years is around 9.75%.

[MarkG]

Why would rates then rise?

Because savers would put their money in banks which offered the best interest rates... which would be significantly more than 4.75%.

Money in the bank, earning 3% real interest is never going to make you rich

I wish I could earn 3% real interest in a savings account. In reality, the interest they're paying probably isn't even keeping up with the real rate of inflation and then I'm taxed on top!

Edited August 3, 2005 by MarkG