Debunking Market Fears: An Introduction
Whether you meant to or not, it's hard not to see the headlines: THE MARKET IS CRASHING! The majority of the time I end up talking about stocks with friends they will bring up the last negative headline they read and say - "a thousand points on the Dow lost in a week? NO THANK YOU!"
In case you missed it, the market had one of the worst sessions in history this morning - the Dow Jones Industrial Average collapsed nearly 1,100 right at the open and the Dow has never lost more than 800 in one day in all its history. Ultimately, this index closed down only 588 points...and I say that like it's not a big deal. While it's temping to duck and run for cover from anything market-related, these are the kinds of days that get me excited about when to jump in and buy stocks I'd been meaning to add.
A lot of my friends still have a hard time understanding what I do (and did), and that lack of understanding equates to a fear of what I'm trying to offer them. Listen - it's perfectly normal to be terrified of losing money in stocks, most people are. However, you have to learn to NOT be like most people - basically stop being normal because there's no place for that in the investing world.
Some of my close friends inspired me to create this blog series called "DEBUNKING MARKET FEARS" where I will attempt to address the main fears and concerns that are preventing you from getting into the stock market. Today I will address today's market selloff and in simple terms what it means...
THE MARKET HAS BEEN TANKING FOR THE PAST WEEK, ARE WE IN ANOTHER RECESSION?
No. Not even close.
An economic recession by its definition is when a country's gross domestic product (or GDP) shows two consecutive quarters of negative growth. The last two quarters have shown that GDP is still positive and virtually all of the economic data released for the past few months has been relatively positive. Keep reading my commentaries for Seeking Alpha to see why. A recession doesn't just drop out of the sky. It takes quite a long time for the image of a recession to appear on the charts and when it does there is plenty of time for people to react.
BUT WE ARE IN A BEAR MARKET NOW!
No, we're not.
Individual stocks can be in a bear market though. As of today, 219 of the 500 names in the S&P 500 are in a bear market -- more than half are still holding on strong. The major thing to be concerned with is the crossing of moving averages and the spread getting increasingly wider. The chart below of the Dow Jones is kind of scary, but if you look on a longer time-line, it's not that bad. There are TONS more factors I can talk about, but the most you need to know is...it's okay.
ALL INVESTORS ARE WORRIED, WHY WOULD I WANT TO BE A PART OF THAT?
This is false. Not ALL investors are worried.
Because if they were then the bottom would completely fall out and the market would've went from 18,000 to zero in a matter of minutes. Think of a doctor performing surgery on you - if one little thing goes wrong, do you think the doctor will throw up his hands and panic and tell you "oh well, now you're going to die"? (P.S. if you know a doctor like this, run. for. the. hills.) If you watch CNBC or listen to any market manager or economist, they are all perfectly calm and will say to find the source, stop the bleeding, and getting better - exactly what a doctor would tell you. When in doubt, listen to the experts: even if you don't understand what they're saying listen to their tone, body language and confidence factor. This can tell you a lot about what you need to know. If anything, I can tell you that a lot of them are excited because they are looking for opportunities to buy stocks to make the largest gains for when the market recovers.
WELL, THOSE NYSE TRADERS ON TV AND IN THE NEWSPAPER LOOK WORRIED!
That's true, because unlike you or I they can make or lose millions of dollars in a matter of seconds and are under extreme pressure to outperform relative to the day before. Don't worry about their demeanor because you're not even in the same ballpark as them. In fact, it's not even the same sport.