Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Wall Street Conventional Wisdom and Stock Market Corrections

Stock-Markets / Investing Nov 07, 2007 - 07:42 PM GMT

By: Steve_Selengut

Stock-Markets Best Financial Markets Analysis ArticleDuring every correction, I encourage investors to avoid the destructive inertia that results from trying to determine: how low can we go; how long will this last? Investors who add to their portfolios during downturns invariably experience higher Market Values during the next advance. For just as surely as there is a Santa Claus for every five year old, there is another "value stock" rally for every fingernail biting fifty-five year old.


Value Stocks have entered the sixth month of a broad downturn, and nearly 50% of all Investment Grade companies are now down more than 15% from their highs. Seventy percent of those are down more than 20%. Working Capital Model users should be running out of cash about now, while they add more issues to their portfolios, and more shares to existing holdings. Investors know that good companies rarely close their doors, or even cut their dividends.

Corrections are as much a part of the normal Market Cycle as rallies, and they can be brought about by either bad news or good news. (Yes, that's what I meant to say.) Investors always over-analyze when prices become weak and lose their common sense when prices are high, thus perpetuating the "buy high, sell low" Wall Street lunacy. Waiting for the perfect moment to jump into a falling market is as foolish a strategy as taking losses on investment grade companies and holding cash. Corrections in both Equity and Income securities produce the same kind of hysteria as a spring sale at Macy's... but in reverse. The fundamental quality of value securities does not change simply because their prices fall in response to market conditions. When all value stocks are moving lower, it's an opportunity, not a problem. When all [insert: bank, insurance, agriculture, oil, entertainment, travel, transportation, advertising] are lower, it's an opportunity, not a problem.

During every correction, I'm amazed at the shocked reaction of the Media, the confused explanations emanating from the Market Gurus, and the incredibly poor advice streaming forth from the Oracles of Wall Street... every last one of them. It's no wonder that the average investor is in a state of panic! If they could buy a new car, a new business suit, or a new house for half price, they would be ecstatic! Why does a lower price for a share of a high quality stock make them go bonkers? The Conventional Wisdom from Wall Street makes it so; the Conventional Wisdom from CPA land reinforces it; the Conventional Wisdom from financial advisors preys upon it. Experienced Investor Wisdom is boldly different. For example: (1) Corrections are always buying opportunities, the broader the correction, the better. Wall Street thrives on the fear and suffering. (2) Rallies are always selling opportunities.

Wall Street would rather stroke your greed button with visions of upward only prices. Your accountant doesn't want you to take profits, and has you convinced that losses are really better than gains. (3) Higher Interest rates are good for investors... so are lower interest rates. Wall Street doesn't really care. They push short-term vehicles to address investors' fear of price fluctuation, and shun simplex income producing strategies while they promote complex derivatives that always unwind badly. (4) The calendar year is of no particular investment relevance.  (5) Investment performance analysis should be an objective based program monitor instead of 365-day horse race with irrelevant Market indicators. Wall Street used to agree with (4) and (5). Since then they have learned that they make more money from unhappy investors.

Repetition is good for your CPU, so forgive me for reinforcing what I've said in the face of every correction since 1979... if you don't love corrections, you really don't understand the financial markets. Don't be insulted, very few financial professionals want you to see it this way and, in fact, Institutional Wall Street loves it when individual investors panic in the face of uncertainty. But uncertainty is the regulation playing field for investors, and hindsight isn't welcome in the stadium. Rarely do corrections kill good companies, no matter how bad the news, how big the scandal, or how troubled the economic outlook. If you've been investing in quality companies and have a secure cash flow within your portfolios, you will weather any storm. Loss taking is never smart, savvy, or necessary... even if it cuts the tax bill.  Buy more of lower priced good companies while maintaining smart diversification according to the Working Capital Model. Add to lower priced income securities to reduce the cost per share. Make your retirement plan contributions yesterday!

There is an Investment Mindset Solution for the problems that most people have dealing with corrections, recessions, inflation and the Red Sox. Bad news creates opportunities; so does good news. I've never understood why yard-sale prices in the stock market are so scary. And recession? Most people don't realize that a recession is just two consecutive quarters of lower GDP. Not a big deal until it happens, and then, really good things get done to fix it!  In recent years, Wall Street and the media have turned the process of investing into a competitive event. What was once a long-term, goal-directed activity has become a series of monthly and quarterly sprints. The direction of the market isn't nearly as important as the actions we take in anticipation of the next change in direction. Performance evaluation needs to be "rethunk" in terms of cycles!

The problems, and the solutions, boil down to focus, understanding, and retraining. You need to focus on the purposes of the securities in the portfolio. You need to understand and accept the normal behavior of your securities in the face of different environmental conditions. You need to overcome your obsession with calendar period Market Value analysis, and embrace a more manageable asset allocation approach that centers on your portfolio's Working Capital. You need to stop looking at your account on line so frequently and go to the movies. You need to elect new people who know how to connect the economic dots and who will restructure the tax code to eliminate all taxation of investment earnings.  Corrections fuel rallies, it's just a matter of time. But for now, relax and enjoy this correction. It's your invitation to the fun and games of the next rally, when you will see that correction is spelled o-p-p-o-r-t-u-n-i-t-y after all.

Note: The 2nd Edition of "Brainwashing" is here!


By Steve Selengut
800-245-0494
http://www.sancoservices.com
http://www.investmentmanagemen tbooks.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

Disclaimer : Anything presented here is simply the opinion of Steve Selengut and should not be construed as anything else. One of the fascinating things about investing is that there are so many differing approaches, theories, and strategies. We encourage you to do your homework.

Steve Selengut Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ed
09 Nov 07, 20:31
Conventional Wisdom Could Fail

conventional wisdom may not work this time cause we are dealing with the biggest financial crisis that has never been seen. The worst case senario could be another great depression for a decade and the greenback is trading lower than the japenese yen. If this doesnt not happen, the Nasdaq will reach 5000 in less than two years. one way or the other, not anything in between.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules