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
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20
QE4EVER! - 9th Sep 20
AMD Ryzen Zen 3 4800x 10 Core 5ghz CPU, Cinebench Benchmark Scores (Est.) - 9th Sep 20
Stock Traders’ Dreams Come True – Big Technical Price Swings Pending on SP500 - 9th Sep 20
Should You Be Concerned About The Stock Market Big Downside Rotation? - 9th Sep 20
Options Traders Keep "Opting" for Even Higher Stock Market Prices - 8th Sep 20
Gold Stocks in Correction Mode - 8th Sep 20
The law of long-term time preference and Gold ownership - 8th Sep 20
Gold Bull Markets: History and Prospects Ahead - 8th Sep 20
Sheffield City Centre Coronavirus Shopping Opera Ahead of Second Covid-19 Peak - 8th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Stock Market Rally Is Coming! The Rally Is Coming

InvestorEducation / Learning to Invest Mar 12, 2008 - 10:44 AM GMT

By: Steve_Selengut

InvestorEducation Best Financial Markets Analysis ArticleAlways buy too soon--- because no one will tell you either when the rally will start or, more importantly, how long it will last. Of course those are the two things you want to know, but all you really have to go on is the experience of the past. This is not going to be a technical analysis of a series of numbers or chart formations that have predictive capabilities. Instead, it is intended to be a mild sedative to calm your collective fears and to allow for a relaxed analysis of the corrections of the past. You have to prepare yourself for the rally that is surely coming, and it may just arrive sooner than you think--- today, even.


Yesterday's classic e-mail question wondered: "Is this ever going to end?" The reference was to the eleven-month correction playing out concurrently in both the investment grade value stock (IGVS) and the income securities markets--- the anxiety was cloaking the monitor screen in doom and gloom. Most of you would be surprised at how frequently the current scenario has repeated itself during the last 80 years. Quite typically, a new set of abuses has been identified as the cause of the problem, and it is likely that a new set of regulations will be enacted for monitoring by new legions of enforcers.

There is more in those six little words (Is this ever going to end?) than meets the eye, and too many investors share the misconceptions that lie beneath the surface: The market has never and will never be a one way ticket to ride (smile Beatles fans). None of the important aspects of the voyage (advances, declines, speed, beginning, or end) are predictable, by anyone, no matter how overpaid or well credentialed. It has become clear to me over thirty-five plus years muddling through the investment exercise, that most of the mistakes are made by people who over complicate the process. This is not at all rocket science. In fact, the only science(s) that are at all helpful are economics and management--- mostly management, since the market and economic cycle realities are fairly clear.

Good investment portfolio management, for example, would have you looking for quality additions to your portfolio inventory for later sale at a reasonable profit. Management includes the discipline, rules and procedures that are necessary to create, implement, and control an investment plan. It requires an understanding of what is going on, in and around the portfolio, so that you can react rationally rather than emotionally. If you have been taking losses over the past several months in investment grade securities, and/or if you have been buying the currently more popular, but historically more speculative, fear products of the moment, you are on the wrong track. The rally is coming on this one!

In the simplest of terms, stock market corrections are caused when there are more sellers in the markets than buyers. Corrections in the income securities markets are normally caused by changes in interest rate movement expectations.  The duration of stock market corrections will vary with the nature of the events that cause the correction in the first place. There are six types of selling, but only two types of buying. What? People buy stocks either to hold them for profit taking, donating, or bequeathing in the distant future, or to trade them in a more businesslike manner for profit taking ASAP. Securities are not purchased with the hope (or knowledge) that the market values will diminish--- except in the case of portfolio window dressing, where the institutional money managers really don't care one way or the other.

Selling, on the other hand, is a much more complicated decision, with six separate and distinct motivations and an expectation of financial loss:  

(1) Loss taking on securities that have fallen in market value because of the irrational fear that they will never be able to recoup the losses quickly enough, if at all. Why speed is important puzzles me, but analysis of a few charts of IGVS would quell such fears. With regard to income securities, this fear of market value erosion is somehow equated with loss of income--- a relationship that just doesn't exist. Fear selling is generally more prevalent in inexperienced investors.

(2) Window Dressing is normally a quarter or year-end phenomena where money managers cull unpopular issues from portfolios to appear wiser to their clients. But with most investors addicted to personal on-line portfolio access, many individual managers have succumbed to client pressures and have begun to look a lot like their institutional brethren. Wrap Account managers are likely to use these strategies on a monthly basis as well.

(3) Greed driven switching from a weak stock or bond market to a hot new speculation is another form of selling that peaks toward the end of corrections, as investor patience wears thin. These sellers push whatever vehicle has had the best recent performance even higher, helping to create the next bubble.

(4) Pure profit taking is my favorite reason for selling, but a surprising number of professional money managers hold on to their winners far too long, and little of this type of selling takes place so deep into a correction.

(5) Stop loss profit taking in Mutual Funds and in individual securities produces a significant number of sell transactions, and much of the liquidity produced falls into the managers' wait-and-see, or market-timing, cash allocation.

(6) Finally, and most importantly, there is the financial adventure of Short Selling, in which speculators expect to make money from a continued decline in a stock's market value. It is disturbing that the elimination of the up-tick rule has allowed large-scale traders to sell securities they don't even own in large enough quantities to wage war on target companies. This strategy involves selling borrowed securities at the current price and then "covering" the position with stock purchased at a lower price and pocketing the difference.

So, the various categories of sellers, regardless of their motivation, create large pools of money, while the buyers accumulate larger and larger stock holdings. Now the buyers, you'll recall, have no interest in selling their positions at a loss.  Sooner or later, some gutsy financial gurus will declare the stock market oversold and full of bargains; some of the brighter ones have already been talking about how cheap municipal bond based securities have become. A few days of positive market numbers will create some itchy-trigger-finger, short covering that will spiral the equity markets into its next feeding frenzy, gobbling up even the memory of this correction.

But the markets cycle onward to newer highs, and to higher lows, with no right or wrong, no good or bad--- just some simple truths, that experienced decision-makers learn and thrive upon. No person ever became richer by selling at a loss during a correction or by waiting for the market to achieve new high ground to get new positions started. Always, yes always, buy too soon during corrections.

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.


Post Comment

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

6 Critical Money Making Rules