Investing in โNo Mans Landโ
Jun 29, 2023It’s a fact that the stock market fluctuates. It goes up and it goes down and the savvy investor knows this. They don’t take their money out as soon as they see an inkling that stock prices are going down. The stock market favors the long term investor!
But why does the stock market fluctuate?
There are many reasons why it fluctuates, here are the top 4 reasons:
1. THE CURRENT ECONOMIC SITUATION
There are genuine fears right now that a recession is looming. Only last week the Federal Reserve Board announced there would be two increases in interest rates, although they didn’t confirm when that would be. This makes people more cautious about investing.
2. LOCAL AND GLOBAL EVENTS
The Covid global pandemic is an example of an event which caused a downturn in the stock market. Businesses couldn’t operate like they had, people were spending less money in certain industries and the entire world was affected.
3. PROFIT TAKING BY INVESTORS
Companies like Google and Apple who’ve been doing well recently, hence investors will be selling some of their stock shares and therefore the price of the share will fall. When a company makes more profit than expected, the stock price rises and this is how people make money, day trading.
4. NEW INNOVATION SUCH AS ARTIFICIAL INTELLIGENCE (AI)
Recently the technology sector posted a rally (which means that all stock prices in the tech sector rose). This was attributed to the largest global tech companies including Meta, Adobe, Google, Apple and Microsoft. AI technology was a huge breakthrough (platforms including ChatGPT for example) and therefore the sector rose.
What is a stock market Correction?
Most people consider a Correction to have occurred when a major stock index, such as the S&P 500 index or Dow Jones Industrial Average, declines by more than 10% (but less than 20%) from its most recent peak. It’s called a Correction because historically the drop often “corrects” and returns prices to their longer-term trend.
A Correction allows you to understand the average price of a company’s share.
When a company is about to publish their quarterly financial earnings, a lot of people will put money into the company because they know that they’re coming out with something new e.g. like some new technology.
Why do we have this index? If these top 500 companies are doing well we know the economy is going in the right direction. If they’re not doing well we know the economy is in a downturn.
What can happen when you’re not in tune with how the stock market works
If you see the price of a stock decreasing by more than 10%, you’ve lost money but in the longer term the price corrected will go up and down. If you don’t sell when there’s a correction, you’ll never lose in the stock market.
People lose money because they don’t understand the stock market favors long term investors.
Becoming a long-term investor is how we make money and create long term wealth. If you jump mid-flight you are going to lose money! Fear mongering keeps women out of the stock market and investing!