1997 is the year right before the tech bubble really started to expand. You could say that it was a normal place for stocks to be at, a baseline of a healthy economy. After 1997 there was the tech bubble and subsequent burst when stocks fell from an inflated high to just below 8,000 before getting buoyed up by the housing bubble. This housing bubble then took stocks up ever higher before the collapse a year and a half ago.
Since that time I have been waiting for the DOW to drop below 7,000. If that was the number at a time when the market was in a non-bubble state and healthy, and we are currently in a recession than now we are getting close to being at a non-inflated stock market value. I am not saying that I think that it will get much better any time soon, but I can now say that the market is a whole lot closer then it was when it hovered around the 8,000 and then 7,000 mark.
So I am happy with the recent slide in the market indices. This is also because I am in a great position. I have yet to invest anything in the market, stock or housing. Now that price are dropping to reasonable levels I will probably be able to enter the market and see a decent return on my investment. For people who bought at the hight, or who were banking on continued ridiculous growth, well sucks to be you, but that is the market and it exists with risks.
This topic also makes me think of another thing I have noticed, news comparisons. Has anyone else noticed how the news media always makes a comparison with economic or disaster news to the past. Today it was "the DOW is as low as it was in 1997." Sometimes it is "the greatest drop in employment numbers since the 1970s." These comparisons make some sense, giving perspective on the last time that we had problems and getting people to think about what life was like during previous hard times.
Sometimes however the comparisons are just dumb, like "Gas prices are the highest since last week!!" I am all up for perspective, but really it should actually give some perspective.
2 comments:
The problem with the stock market is that it's run by public opinion. This leads to a lot of stupid behavior. The public loves the hot new trend while ignoring "boring" companies that happen to be good at consistently making money. The market will always have ups and downs. Unlike you, I do have retirement in diversified stock investments. It's easy to look at my retirement statement and panic about the losses, but if I stop and think, those losses are just on paper. The market will eventually rebound and, like you pointed out, now is a great time to buy. Young people like me can ride out the bad market and, honestly, older people had no business putting their retirement entirely in the stock market in the first place. People who will shortly depend on the income need to switch to safer investments such as bonds. Unfortunately, the current system pays stock traders by the trade. It's no wonder, then, that most brokers pressure their clients into active trading strategies. Buy and hold may not be exciting but when you factor in commissions paid to your broker, it will consistently outperform active trading strategies.
Excellent point about the traders Mr. T, so how do we fix the problem?
What sort of carrots or sticks can be put in place to initiate the necessary cultural/institutional change? And would any change have a chance of happening, because I bet that any change would lower i=the opportunity for the growth of personal wealth, and where do you draw the line between the personal and public good in a capitalistic system?
Also, should people put more of their portfolio in bonds and other safer things as they age, trading greater returns for stable returns?
It just kind of sounds right.
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