TAKING STOCK OF THE MARKET
The New York Stock Exchange has been an American fixture almost as long as we’ve been a nation. Being “in the market” has been, and remains, of concern for generation after generation of Americans. This goes for me as well. I’ve made money, lost money – overall, I think I’m ahead, but am not certain. Still, I’ve always taken notice of “Wall Street,” come to understand at least some of what was going on, (although probably no more than a portion of the nearly endless ways to “invest”). What follows are more or less random observations derived from years of following the ups and downs of this incredible mechanism for money-making make believe. After reading this, it’s unlikely you will plunge into securities (interesting word), but you might come to appreciate the fact that the stock market will remain and serve as a prime engine of capitalism and like it, the source of endless dreams and periodic disappointments.
• Is the market yet another form of gambling? It can be. Do we not commonly speak of “playing” the market? Don’t we risk losing what we’ve ventured? How much do we really know about the company whose stock we’ve bought? Don’t we sometimes rely on a hunch or a tip from someone who is supposedly “in the know?” Isn’t our goal often enough a “quick buck?” Aren’t some attracted to penny stocks, the equivalent of a gambler’s longshot? A majority of those in the market will deny they are gambling, assure you they’re “investing,” though admitting there is an element of gambling involved. Nevertheless, bear in mind, they’ll note, that if you made a bet on the roll of the dice or the outcome of a game and you lost, the money is gone instantly. If, on the other hand your stock declines, your money has not vanished – the stock price in time could easily rebound. And if you are a “long term” conservative investor you’re comforted by the fact that, over time, the market has almost always gone up. And finally, there’s the risk that gambling can become an addiction. A stock addict? A species most rare.
• Public companies go about their business one day not much different from the one before or after it. But in the market, their stocks go up and down, register highs and lows, seemingly disconnected from the conduct of their business. In the market, every day can be a new drama, a unique arena, forces often unexpected and external, operating in one direction, then another. That’s why, for many, weekends prove lackluster (lacking excitement, because markets are closed). But then, on Monday, energy levels rise once again, with the 9:30am bell and the start of trading activity.
• “Buy low, sell high” – is among the oldest of market clichés. So is “you can’t time the market.” Here you are eager to get in but you hesitate, judging that the market or “your” stock will head lower. It doesn’t – you’ve missed a golden opportunity. But then you do buy the stock and it heads higher. Sell. Take your profit! You do, but it continues to go higher. Sometimes winning is “losing.” “Greed” has triumphed over patience.
• New Issues. A company is about to “go public.” Usually this stock is distributed by underwriters to “insiders” and substantial investors. The “little guy” tends to get shut out. Not always. Occasionally he gets some shares and almost always the price goes up. Carried along, these folks are in for a thrilling ride.
• A sports fan is always on the alert for rookie sensations, or newcomers who rapidly become the talk of the sports world. Same with stocks that generate widespread excitement and accelerate upward. There have been many such winners over the years. In recent months, companies such as Tesla, Zoom, Netflix, Amazon, Beyond Meat, some old, some new, have run away from the pack. Get on board – jump in while the momentum lasts. Or is it too late?
• If only. Lots of people will relate stories about investments they should have made, opportunities lost. It could be in real estate, a business, an invention, etc. For whatever reason, they passed on it. They could have made a fortune. Check various business sites and often you’ll spot an item about how if only you had bought IBM, Microsoft, Apple, Alphabet, Facebook, Amazon, etc., at the beginning, you’d now be worth. . … Maybe next time!
• On the lower end of Manhattan, near the Wall Street area, stands a bronze sculpture of a bull, a massive object that symbolizes investors’ fondest hopes. In a “bull market” a rising tide lifts most all stocks. Buoyant optimism and general euphoria prevails. Money pours into stocks, and bullish “gurus” predict dizzying heights for the Dow. Beyond that, the “wealth effect” kicks in, as people whose portfolio values have gained substantially feel flush and start spending more. (Until Corona arrived a bull market ran for eleven years!) But alas, “bears” lurk in the shadows and warn that there is obvious financial froth all about that bears little relationship to corporate profits and future economic trends. And so a classic tug of war occurs between “risk on” and “risk off” market players, between those with high hopes and others with fresh fears. Often stock prices can turn in an instant, market moods can quickly reverse course. Bears and bulls must always be wary of one another.
• Regular sports bettors know there are multiple ways to wager on a contest including on the winner (by beating the point spread) total points scored, (over and under) first score, leading scorer, etc. Likewise, the stock market offers a lavish menu allowing people to partake in a bewildering number of ways, including direct purchase, buying on margin, puts, calls, straddles, specialty mutual funds (including foreign stocks), index funds, and ETF (exchange traded funds) in all imaginable categories. Are you confused, feel over your head? Better turn to a broker or a financial advisor. In the market “the little guy” is usually at a distinct disadvantage.
• The stock market, we are told, is always “forward looking,” can be likened to a fortune teller. It is true. “Technicians” devise all manner of charts of previous stock performance and discover past patterns which they claim are predictive, but students of the market declare that its behavior is largely predicated upon looking ahead while largely discounting past performance. When, for example, long-term interest notes fall below current levels (inverted yield curve), they signal a slowing economy down the road and produce a market downturn, Traders carefully follow quarterly corporate reports because they almost always include “forward guidance,” a company’s prediction about future revenues and earnings. These then form the basis for evaluating the company when it next reports. If its profits fall short of expectation its stock price will likely slump. If, on the other hand, it exceeded the company’s previous estimates, expect the price to move up.
Most Americans who are in the market do so in order to secure their future well-being; to have ample funds available for retirement. If the American economy expands and the market rises accordingly, it will, for all its volatility and “irrational exuberance” prove its value, that is, provide Americans with their most significant safety net.