Can the Stock Market Resiliency Continue

In early March 2009 the stock market fell to its lowest level in 12 years. While much could be said and written about how and why the market lost so much value so quickly, it is interesting to note how the stock market in its infinite resiliency always comes back.

Have you ever wondered why? Because, despite all the markets risk, negativity, and volatility, the stock market remains one of the best investment vehicles available. Secondarily, the markets thrive on a foundational principle of business, supply and demand. Essentially there are always people on the sidelines looking to buy and there are always people looking to sell. Trying to find the best place to either buy or sell is what sustains the market and there is a significant number of traders on either side.

No matter your position in a given market you will always be looking for a place to either enter or exit the market. Let’s assume that you did not hold a big position in any stocks during the downtrend of the last two years. This investor is looking to capitalize on lower prices and a potential for bigger gains. Now to be sure there is nothing in any economic data that suggest that the market is in store for a long-term recovery. Yet the market sustains itself with investors trying to find a bottom to the market.

Now take a look at the investor who did hold a sizable position in a recent downturn. This investor either sold or held his positions as the market continued its decline. What motive does this investor have? This investor is seeking to regain a position once held or trying to recover from a loss taken from selling on the way down. and that brings us to today’s markets.

Can The Markets Continue ?

Well wouldn’t we all like to have the answer to that question? When markets are up, they often look for a reason to go down. Conversely when they are down they look for any bit of news to make them go up. That’s one of the reasons it is so difficult for individual investors to invest in the stock market. Individual investors just do not have the access to the information that they need to be consistently successful.

The debt ceiling debate at this point seemingly has no effect. However, that is likely to change in the near future. Fed Chairman Ben Bernanke said that he will consider more monetary easing later this fall. I frankly don’t know how that can be good news for investors. If a default by the United States government occurs, or the government gives the appearance of a default, investors will wish they had taken profits when they had the opportunity. It only takes one bit of negative news for the market to latch onto to start a free-fall.

There is nothing wrong with taking profits off the table. You have heard the old adage that when it comes to investing, investors can and will lose money. Stocks have traditionally protected investors against inflation. The notion that you always need to be in the stock market may simply not apply in today’s economy.

That concept — the need to hold a lot of stock at all stages of life — may be the single most wrong-headed idea in investing now. Retirees who took the advice of many financial planners had 60% to 70% of their assets in stocks when the financial crisis hit. Those who couldn’t hold on may have suffered irreparable losses. Howard Gold , MarketWatch

There is a time to buy, a time to sell, a time to hold.  But, there is also a time to just watch how the game is played. That time may be now.

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