Jitters
After a long rally market experienced some jitters yesterday. The newspapers and professional fear mongers wasted no time in coming out with a laundry list of things wrong with the economy and to claim we are doomed. What is missing is some perspective.
Market go up over a long period of time. Along the way there are many such jitters and scary scenarios. The economy develops imbalances, most of the time the market takes care of such imbalances. In the history of the markets, crashes are rare phenomenon. But there is no lack of people who will predict a crash or 50% drop in market everyday.
Such negative doom and gloom talk is extremely popular with the peanut gallery crowd. Most ordinary and failed speculators are attracted to such talks. In a way it is good, because it scares them away from doing the right things in the market and protects their capital.
From a profitable speculation point of view, proper risk management can get you out of most such corrections with little damage. If you maintain your perspective, you use corrections to hunt for bargains or prepare a list of stocks withstanding such corrections and be ready to jump when the market signals a possible rally. Good risk management is for such periods.
Nothing changes in the market. It goes up a lot, along the way it corrects. Occasionally it goes in to bubble territory and then corrects a lot. On extremely rare occasion it crashes. Probability of market going down 50% in a year is extremely low, so anyone who predicts a 50% drop year after year has no clue about speculation and how market works.
Market go up over a long period of time. Along the way there are many such jitters and scary scenarios. The economy develops imbalances, most of the time the market takes care of such imbalances. In the history of the markets, crashes are rare phenomenon. But there is no lack of people who will predict a crash or 50% drop in market everyday.
Such negative doom and gloom talk is extremely popular with the peanut gallery crowd. Most ordinary and failed speculators are attracted to such talks. In a way it is good, because it scares them away from doing the right things in the market and protects their capital.
From a profitable speculation point of view, proper risk management can get you out of most such corrections with little damage. If you maintain your perspective, you use corrections to hunt for bargains or prepare a list of stocks withstanding such corrections and be ready to jump when the market signals a possible rally. Good risk management is for such periods.
Nothing changes in the market. It goes up a lot, along the way it corrects. Occasionally it goes in to bubble territory and then corrects a lot. On extremely rare occasion it crashes. Probability of market going down 50% in a year is extremely low, so anyone who predicts a 50% drop year after year has no clue about speculation and how market works.
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4 comments:
Very well said Pradeep! The culprit also is media to some extent. I've almost always seen the media writing negative articles as soon as we see some red and also channels like CNBC hand over their Mic to perma bears, who are more than happy to scare the poor home gamers from making an entry at a dip!!
great post pradeep. I still think that you have the best stock blog out there.
The bears are like hecklers at a marathon; they will cheer every momentary stumble, but ignore the fact that mile markers are being passed with regularity ...
Thanks.
I am amused by the fact how easy it is to fool vast number of people in believing that bull moves are just manipulation by govt.
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