|
PureBytes Links
Trading Reference Links
|
> Bruce,
Now you brought up two more bull arguments today:
1. People who don't invest in the stock market have lost opportunity
profits.
2. What should the baby boomers do with their hard earned money ?
The first argument is certainly true - to some degree. It is only true
when the people who have actually invested in the market have got the
opportunity to cash in their profits. Otherwise there was no
opportunity.
As said before: paper profits can't be confused with cash-in-the-
bank. Some people regard their mutual-funds holdings as cash. This is
simply not true. (You will not even get through to your mutual fund
sales force when the market is coming down lets say 10% on a day).
Similary none of the mutual funds will ever get the opportunity to
cash in their winnings when the tide turns.
I would love to see a chart comparing the total of net-asset values
with the total of stock-prices for the SP500. I am pretty certain that
the ratio is at a record low.
Your second point covers one aspect that I did not cover before.
Certainly people have to invest their money somewhere. But their are
plenty of opportunities out there if you consider the first point I
mentioned.
What it boils down to is the question of risk and reward. If you hold
investments in stocks then you cannot just simply approach it from the
negative side and ask: What else should I invest in ? What you need to
ask is:
What do I believe can the market rise to from here and what is the
potential downside.
And with this question in mind I am telling myself: The market has
risen so much that without looking at any number or system or indicator I
know that downside POTENTIAL is much bigger than the upside POTENTIAL
because already so many people are stting on those "opportunity profits"
that you mentioned. I would rather call them paper profits.
Gerrit Jacobsen
>
>
> ...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
>
|