When the Markets get Emotional

When the Markets get Emotional

I’ve often heard investors say that a market correction is a good thing in the long run, but when it actually happens everyone acts like it’s a bear market. Like it’s the end of all things as we know it. When you buy the stock of a company, you should have a good idea of why you are buying it. In other words, know what you own and why you bought it in the first place. Take for example the largest holding in anyone’s investment portfolio, the fundamentals of this said company are the same as they were a month ago but chances are today its worth a lot less than it was then. Short term gyrations in the price of a stock are nothing more than market noise, like static on an old radio. The stocks of companies are long term assets in nature and that’s the best way to approach investing in them. Try to buy them well (below what they are worth) and hold on to them for long periods of time.

And speaking of the markets; most people acquit the markets with various indexes. Some of these indexes are capitalization weighted where the market cap of a few of the largest companies effect the whole index. The better known market indexes have become institutionalized, where big money is blindly put into the index based only on the liquidity the index provides and not on it's underlying fundamentals. In my mind a better way to gauge the state of the current market is to track the advancing/declining volume of the NYSE and make a cumulative running line of it. I then apply some moving averages to this line, then I subtract one moving average from the other and viola, I have created a momentum indicator based on the breadth of the market. Waning/waxing  momentum creates divergences with the said indexes indicating a shift in the supply and demand of stocks. One could do the same with the adv/dec line of the Nasdaq. The New High/Low list is another good indicator to keep track of. I don’t use the adv/dec of the NYSE anymore as it has lost its relevance as an indicator due to all the junk that is now included in it.

And lastly, turn off the TV and logoff the internet. Bad news sells and the media knows it. They are not there to keep you informed but only to attract as big a viewing audience as they can so they can generate advertising revenue. That’s just the nature of capitalism. And that’s okay as long as you don’t allow yourself to get caught up in their madness…Relax go outside and take a walk and appreciate the things you already have and leave the emotional nature of market extremes to the unwashed masses (many bodies, one mind)