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Gerrit wrote:
Bruce,
...There have always been times when some things were very scarce and
plenty of potential buyers were around. There was even a time when
there was a major shortage of tulips.
...And why should baby-boomers invest in a falling market if the market
should ever fall ? They can happily keep their money in tripple AAA
investments. Inflation is low - they even make money. They don't need to
invest in stocks - it is just fashionable
to do so.
Gerrit,
The problem I have with you bears is that none of you can give me a
satisfactory answer to a simple question: What exactly are investors
supposed to do with the enormous amounts of savings they are currently
generating through their employment? The money in the stock market is not
"paper" money. It's real, hard earned money that has to go somewhere. The
Tulip panic in Holland in the 1500's was another speculative bubble built on
pyramided paper profits, not real money. Even if people did start selling
stocks en masse and prices fell substantially, they would still have a lot
of cash on their hands at the end of the day. What are they supposed to do
with it? Buy art? Gerrit, you and I both know there isn't enough
investment-grade art in the entire world to absorb a fraction of a fraction
of the amount of money currently in the stock market, and it isn't exactly a
liquid investment.
I threw at you the economic concept of supply and demand as the reason for
the bull market, let me try another one- opportunity cost. In terms of
investing, the opportunity cost of any investment decision is what you could
have earned had you invested in something else. Even though I would agree
that most stock buyers have never even heard of the term opportunity cost, I
honestly believe more and more of them are catching on to the effect this
principle has on their investment returns. That is, they are accepting the
fact that more people have LOST money by being OUT of the stock market than
by being IN it.
Gerrit, if you had your money in a bank CD last year because you thought the
stock market was overvalued, you didn't earn 3%, you actually lost 27%
because you could have earned 30% in the stock market. I obviously realize
you can take the opportunity cost argument to extremes. Somebody could say
I lost 70% last year because I had my money in the market as a whole and not
in DELL exclusively (I'm using ballpark figures here).
However, if you just look at the generally accepted benchmarks of investing-
the S&P 500, 30yr Treasury Bonds, cash and CD's, and maybe gold, I honestly
believe that the average investor is catching on to the fact that being out
of the stock market and in other investments is, over the long run, costing
them money.
Bears love to talk about the market crash of '87, but just how bad was it
really? Investors who bought stocks on Jan 1, 1997 and didn't panic and
sell, actually FINISHED UP for the year! Even the poor souls who invested
every penny they had the day before the crash got all their money back
within a couple of years, and within about four years they were well ahead
of their cash and bond holder counterparts. Was investing all their money
in the stock market the day before the crash really that bad of a decision?
People aren't buying stocks because it's "fashionable," they're buying them
because it's the rational, intelligent decision when the long term track
record of all their possible investment vehicles are looked at. They have
accepted the fact that trying to "time" the market in the long run ends up
"costing" them more money than it saves them. That's why they didn't sell
last October, they BOUGHT. And of course, the baby boomer effect will
continue to give them the money to do so.
On a lighter note, the Dow is down 47 points right now, so for today, the
Bears win (and I'm certainly not talking about the football team)!
Bruce
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