We keep hearing about this bear market and that the bottom is "in" or "very close" so we should be invested in these bargain basement prices to take advantage of the next bull so we won't lose out on the expected huge profits.
This is not a big bear market - yet. What you are experiencing is the cub phase. The full size bear has not appeared. It is going to be one of the biggest, meanest, ugliest Kodiaks the stock market has ever experienced. If you think you have lost money in the last 2 ? years wait a while as this cub is eating everything in sight as he grows larger each day.
If you haven't thrown your paper down because you think I'm nuts let's try on these facts that the talking heads don't want to discuss.
So far the U.S. is better off than many countries, but the economy is slowing down every day and more and more folks are being laid off. As the American consumer slows his buying that cuts into retail sales which cuts into wholesale sales and then the manufacturer must slow his production so he must lay off workers. The slow down and layoffs at the factory affect at least 6 local businesses who either lay off some of their people or are forced out of business.
As businesses slow and their sales and profits diminish it becomes apparent in their stock price so it goes down. Most stocks are priced to valuations based on company earnings called the P/E ratio, price divided by earnings per share. When you look back upon the P/E ratios for the past 100 years there has a mean (similar to an average) of about 14. Currently the P/E ratio for the stock market is about 31. In order for the mean to be realized you have two ways to achieve it. Either the earnings of companies must double or the price must decline by 50% - from here.
When you have a worldwide slowdown the chance of doubling profits is pretty slim so the market does its thing by decreasing price per share. That is called a bear market. When you think about business slowing more from here you also come to understand that it will take some kind of miracle to get profits up. In fact earnings will continue to decline so the reduction in the P/E ratio is a long way off. The more the stock market goes down the longer it will take to get to a "normal" P/E. It kind of feeds on itself.
If you own any stocks or mutual funds you can realize it is time to sell even at these low prices because the market is going to go lower. One of the keys to being successful in the stock market is to sell with a small loss and not wait for it to get bigger. Unfortunately, the small investor always wants to wait for a rally to get out "even". There is no "even" in this market. The smartest action is to sell before your account approaches zero.
The cub is hungry. Don't wait for him to become a full-fledged bear.
(c) 2005
Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter to receive his market letter for 3 months at www.mutualfundmagic.com to discover why he's the man that Wall Street does not want you to know.
maid service near Lake Forest ..Did you know you can make money (and a lot... Read More
With all the bad news that has been dumped upon... Read More
If you've ever flipped on the television to CNN Financial... Read More
Every day I see in the financial section of newspapers... Read More
Mutual funds by definition are a mixed bag of stocks,... Read More
For years I have been saying you must have a... Read More
So you're started trading, you bought some positions with your... Read More
The Bollinger Band theory is designed to depict the volatility... Read More
I don't know what kind it is, but I saw... Read More
Are hedge funds a suitable investment for you? Hedge funds... Read More
Any online investor / trader seeks an excellent off or... Read More
It depends on your level of understanding of the market... Read More
One of the greatest challenges of investing in stocks is... Read More
When you become interested in a stock or mutual fund... Read More
First let's see what protectionism is. According to Mr. Webster... Read More
We need a rabbit!This was a pretty horrible week for... Read More
How is it possible that trash Companies are posting less... Read More
If you have been watching the stock market at all... Read More
Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More
Mutual funds and brokers are always preaching not to buy... Read More
Most stock traders know that momentum trading can be a... Read More
After finding the price of a particular stock, usually the... Read More
Profitable day traders recognize that momentum trading is among the... Read More
It is difficult to make money in a bull market,... Read More
Today we are inundated with tons of information about the... Read More
top rated cleaning service Des Plaines ..Minority Report the movie may not be far off if... Read More
Money management starts with protecting your capital, realizing profits and... Read More
Have you bought any mutual funds this year or late... Read More
A PEG ratio cannot be used alone but is a... Read More
I have a 2-car garage. There are nice shelves on... Read More
The stock market has been in an up trend for... Read More
We all know the expression, "My country, right or wrong",... Read More
If there is one term over-used when talking about making... Read More
Reach in your pocket and take out that big roll... Read More
The following are a list of nine things you want... Read More
We all know that emotions control every decision that an... Read More
The greatest stock market myth is the idea that investing... Read More
In his wonderful book, 'Multiple Streams of Income', best selling... Read More
If you have been watching the stock market at all... Read More
Now where have I heard that before? I know. It... Read More
Cat or dog? Maybe Zebra. Shucks, I don't know, but... Read More
Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More
Every day I hear someone on CNBC proclaim that "this... Read More
Hello Inflation, it has been awhile, I see you on... Read More
To begin, you might look at playing the stock market... Read More
Let's say you are interested in this one company. You... Read More
When purchasing mutual funds we are cautioned to read the... Read More
I receive emails from Morningstar. This company provides statistics and... Read More
Let's discuss commodities; with the latest Enron situation, it is... Read More
Its dinnertime and the phone rings. It's Joe Noname with... Read More
Stocks & Mutual Fund |