Thursday, May 8, 2008

Lessons From Wall Street

Watch and Learn
I will be honest with you. I don't get the market. This is the first time for me observing the market so closely and it is confusing. Definitely interesting and stimulating but still confusing.

What do I mean? There is doom & gloom predictions one day and record rally the next. Oil is at 124, food prices are causing riots in parts of the world and the market rallies. First we were decoupled, and then coupled and now we are discombobulated again. The Fed is bailing out investment banks; cutting interest rates like crazy and economist are predicting the worst financial crisis since the great depression. In the meanwhile the stock market (S&P 500) is only down 10% points from its record high set a few months ago. One day we are in a recession, the next the bull market is back.

I guess I am just soaking it in. Reading, listening and learning. The stock market is a strange animal - full of surprises and contradictions. And the market is different from the business it represents. Therein maybe lie opportunities to make some money (buy low - sell high).

What have I learned in the past few months?

  • Cynicism - Don't believe everything and everyone. Be a skeptic and your own judge.

  • Extreme emotion - Avoid extremes and stay in the middle. Don't sell in a panic and don't buy with the herd. Follow your plan.

  • Volatility- Markets will go up and down and your investment strategy needs to keep up with the gyrations. Pick a strategy that works for all markets and stay invested.

  • Fortune Telling - Timing the market is a fool's game. If you don't believe me - try predicting which way the market is headed. I have been burned enough times to know that slow and steady is a better option than jumping in and out.

  • Shopping - Bargains are to be had when times are tough. Do your research and be ready to pick up bargains when stocks go on sale. Key here is research.

  • Diversify - Yes it is a global economy and your portfolio should reflect some level of diversification. 10% growth beats recession any day.

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1 comment:

theWild1 said...

I am right there with you. This market definitely is confusing right now.